Mahoney Modeling and Valuation of Energy Structures

Analytics, Econometrics, and Numerics
1. Auflage 2016
ISBN: 978-1-137-56015-5
Verlag: Palgrave Macmillan UK
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 474 Seiten

Reihe: Applied Quantitative Finance

This book is a comprehensive guide to quantitative and statistical approaches that have been successfully employed in support of trading operations.

Autoren/Hrsg.

Mahoney, Daniel

Inhaltsverzeichnis

1;Cover;1
2;Half-Tile;2
3;Title;4
4;Contents;8
5;List of Figures;12
6;List of Tables;14
7;Preface;15
8;Acknowledgments;19
9;1 Synopsis of Selected EnergyMarkets and Structures;20
9.1;1.1 Challenges of modeling in energy markets;20
9.1.1;1.1.1 High volatilities/jumps;20
9.1.2;1.1.2 Small samples;21
9.1.3;1.1.3 Structural change;22
9.1.4;1.1.4 Physical/operational constraints;23
9.2;1.2 Characteristic structured products;23
9.2.1;1.2.1 Tolling arrangements;23
9.2.2;1.2.2 Gas transport;25
9.2.3;1.2.3 Gas storage;26
9.2.4;1.2.4 Load serving;28
9.3;1.3 Prelude to robust valuation;30
10;2 Data Analysis and StatisticalIssues;31
10.1;2.1 Stationary vs. non-stationary processes;31
10.1.1;2.1.1 Concepts;31
10.1.2;2.1.2 Basic discrete time models: AR and VAR;41
10.2;2.2 Variance scaling laws and volatilityaccumulation33;48
10.2.1;2.2.1 The role of fundamentals and exogenous drivers;50
10.2.2;2.2.2 Time scales and robust estimation;52
10.2.3;2.2.3 Jumps and estimation issues;53
10.2.4;2.2.4 Spot prices;58
10.2.5;2.2.5 Forward prices;61
10.2.6;2.2.6 Demand side: temperature;62
10.2.7;2.2.7 Supply side: heat rates, spreads, and productionstructure;65
10.3;2.3 A recap;66
11;3 Valuation, Portfolios, andOptimization;67
11.1;3.1 Optionality, hedging, and valuation;67
11.1.1;3.1.1 Valuation as a portfolio construction problem;67
11.1.2;3.1.2 Black Scholes as a paradigm;71
11.1.3;3.1.3 Static vs. dynamic strategies;77
11.1.4;3.1.4 More on dynamic hedging: rolling intrinsic;87
11.1.5;3.1.5 Market resolution and liquidity;94
11.1.6;3.1.6 Hedging miscellany: greeks, hedge costs, and discounting;98
11.2;3.2 Incomplete markets and the minimal martingale measure$^61$;104
11.2.1;3.2.1 Valuation and dynamic strategies;105
11.2.2;3.2.2 Residual risk and portfolio analysis;107
11.3;3.3 Stochastic optimization;120
11.3.1;3.3.1 Stochastic dynamic programming and HJB;120
11.3.2;3.3.2 Martingale duality;125
11.4;3.4 Appendix;130
11.4.1;3.4.1 Vega hedging and value drivers;130
11.4.2;3.4.2 Value drivers and information conditioning;132
12;4 Selected Case Studies;137
12.1;4.1 Storage;137
12.2;4.2 Tolling;140
12.3;4.3 Appendix;147
12.3.1;4.3.1 (Monthly) Spread option representation of storage;147
12.3.2;4.3.2 Lower-bound tolling payoffs;148
13;5 Analytical Techniques;150
13.1;5.1 Change of measure techniques;150
13.1.1;5.1.1 Review/main ideas;150
13.1.2;5.1.2 Dimension reduction/computation facilitation/estimation robustness;154
13.1.3;5.1.3 Max/min options;158
13.1.4;5.1.4 Quintessential option pricing formula;159
13.1.5;5.1.5 Symmetry results: Asian options;161
13.2;5.2 Affine jump diffusions/characteristic function methods;164
13.2.1;5.2.1 L?y processes;164
13.2.2;5.2.2 Stochastic volatility;168
13.2.3;5.2.3 Pseudo-unification: affine jump diffusions;174
13.2.4;5.2.4 General results/contour integration;176
13.2.5;5.2.5 Specific examples;180
13.2.6;5.2.6 Application to change of measure;185
13.2.7;5.2.7 Spot and implied forward models;188
13.2.8;5.2.8 Fundamental drivers and exogeneity;193
13.2.9;5.2.9 Minimal martingale applications;197
13.3;5.3 Appendix;203
13.3.1;5.3.1 More Asian option results;203
13.3.2;5.3.2 Further change-of-measure applications;206
14;6 Econometric Concepts;210
14.1;6.1 Cointegration and mean reversion;210
14.1.1;6.1.1 Basic ideas;210
14.1.2;6.1.2 Granger causality;216
14.1.3;6.1.3 Vector Error Correction Model (VECM);218
14.1.4;6.1.4 Connection to scaling laws;224
14.2;6.2 Stochastic filtering;226
14.2.1;6.2.1 Basic concepts;226
14.2.2;6.2.2 The Kalman filter and its extensions;228
14.2.3;6.2.3 Heston vs. generalized autoregressive conditional heteroskedasticity (GARCH);239
14.3;6.3 Sampling distributions;244
14.3.1;6.3.1 The reality of small samples;244
14.3.2;6.3.2 Wishart distribution and more general sampling distributions;245
14.4;6.4 Resampling and robustness;250
14.4.1;6.4.1 Basic concepts;250
14.4.2;6.4.2 Information conditioning;251
14.4.3;6.4.3 Bootstrapping;254
14.5;6.5 Estimation in finite samples;256
14.5.1;6.5.1 Basic concepts;256
14.5.2;6.5.2 MLE and QMLE;261
14.5.3;6.5.3 GMM, EMM, and their offshoots;263
14.5.4;6.5.4 A study of estimators in small samples;266
14.5.5;6.5.5 Spectral methods;274
14.6;6.6 Appendix;277
14.6.1;6.6.1 Continuous vs. discrete time;277
14.6.2;6.6.2 Estimation issues for variance scaling laws;279
14.6.3;6.6.3 High-frequency scaling;287
15;7 Numerical Methods;291
15.1;7.1 Basics of spread option pricing;291
15.1.1;7.1.1 Measure changes;291
15.1.2;7.1.2 Approximations;294
15.2;7.2 Conditional expectation as a representationof value;298
15.3;7.3 Interpolation and basis function expansions;298
15.3.1;7.3.1 Pearson and related approaches;299
15.3.2;7.3.2 The grid model$^16$;304
15.3.3;7.3.3 Further applications of characteristic functions;319
15.4;7.4 Quadrature;323
15.4.1;7.4.1 Gaussian;324
15.4.2;7.4.2 High dimensions;332
15.5;7.5 Simulation;337
15.5.1;7.5.1 Monte Carlo;338
15.5.2;7.5.2 Variance reduction;342
15.5.3;7.5.3 Quasi-Monte Carlo;352
15.6;7.6 Stochastic control and dynamic programming;356
15.6.1;7.6.1 Hamilton-Jacobi-Bellman equation;357
15.6.2;7.6.2 Dual approaches;357
15.6.3;7.6.3 LSQ;358
15.6.4;7.6.4 Duality (again);363
15.7;7.7 Complex variable techniques for characteristic function applications;365
15.7.1;7.7.1 Change of contour/change of measure;365
15.7.2;7.7.2 FFT and other transform methods;372
16;8 Dependency Modeling;378
16.1;8.1 Dependence and copulas;378
16.1.1;8.1.1 Concepts of dependence;378
16.1.2;8.1.2 Classification;384
16.1.3;8.1.3 Dependency: continuous vs. discontinuous processes;393
16.1.4;8.1.4 Consistency: static vs. dynamic;395
16.1.5;8.1.5 Wishart processes;400
16.2;8.2 Signal and noise in portfolio construction;402
16.2.1;8.2.1 Random matrices;403
16.2.2;8.2.2 Principal components and related concepts;408
17;Notes;410
17.1;1 Synopsis of Selected Energy Markets andStructures;410
17.2;2 Data Analysis and Statistical Issues;412
17.3;3 Valuation, Portfolios, and Optimization;417
17.4;4 Selected Case Studies;428
17.5;5 Analytical Techniques;429
17.6;6 Econometric Concepts;437
17.7;7 Numerical Methods;444
17.8;8 Dependency Modeling;452
18;Bibliography;456
19;Index;470