• Price Risk Management and Hedging

---

Course Outline

 

Due to the highly volatile nature of the price of oil, international trading introduces the risk of large unexpected losses. Price risk management is designed to reduce the price risks associated with trading and introduce an element of certainty. This interactive three-day course is designed to guide delegates through the concept of hedging, allowing them to identify price risk and learn how to manage that risk through different financial instruments.

 

This program is designed for :

• Energy, Oil & gas, Commodity traders
  
• Energy Trading Firms
  
• Trading Managers
  
• Financial, Business & Commercial Analysts
  
• Portfolio & Planning Managers
  
• Oil & Gas Financial Consultants
  
• Oil & Gas Equity Analysts
  
• Oil & Gas Executives in Banking & Corporate Finance
  
• Risk Consultants, Risk Managers
  
• Credit Risk Analysts

 

Benefits:

ANALYSE the market performance oil and gas investments and their future outlook
LEARN to trade products in the oil and gas market successfully
DEVELOP a thorough understanding of the various trading techniques and methods
IDENTIFY market risk and learn to control them effffectively
APPLY practical strategies and technical analysis to mitigate risk factor in energy trading
LEVERAGE on energy derivatives to hedge prices and risk exposure

 

Course Outline

 

DAY 3

Physical pricing mechanisms
Supply and demand
Crude valuation
Fixed vs. floating vs. EFP

 

Understanding price exposure
Long / short
Marking to market
Pricing structures and correlations
- Brent
- WTI / ASCI
- Dubai
Volatility, normal distribution and standard deviation
 

Identification of risk
Basic principles
Objectives
Basis risk, credit risk, operational risk and volumetric risk
Measuring and analyzing risk
Value-at-Risk (VaR) concept
Long and short hedging
Contango and backwardation
 

Futures - the basics
Features of futures
Expiry cycle
Forward curves
Clearing
Exchange of Futures for Physical

 

DAY 4

Hedging with Futures
 

Basic concepts
- Definitions and terminology
- Profit and loss
- Exercise and delivery
 

Pricing
- Cost of carry
- Contango
- Backwardation
- Basis
 

The clearing house
- What is a clearing house?
- Central counter-party
- Margin
- Exercise and delivery
 

Exchange of futures for physical/swaps (EFP/EFS)
- Increases open interest
- Decrease in open interest
- No change in open interest
 

Trigger pricing and basis trading
- Objectives
- Trigger pricing process
- What is basis?
- Establishing basis differential
- Trading the basis

 

Hedging with Options
 

Basic conceptions
- Definition and termination
- Exercise and delivery
- Rights and obligations
 

Characteristics of options
- Risk and reward
- Profit and loss profiles
 

Principles of pricing
- Options premium
- Intrinsic value
- Time value
- Volatility
 

Basic trades
- Long call
- Short call
- Long put
- Short put
- Gearing
- Hedging
 

Options sensitivities - The Greeks
- Delta
- Gamma
- Rho
- Theta
- Vega

 

DAY 5

Hedging with Swaps
 

Basic structure
- Plain vanilla
- Who’s the buyer, who’s the seller
- Fixed for floating
- Cash flows
 

Different types of swaps
- Differential
- Participation
- Extendable
- Double up
- Swaption
- Prepaid
- Margin or crack
 

Pricing
- Forward curve
- Contango
- Backwardation
- Futures
 

OTC clearing
- Basic principles
- ICE
- NYMEX
- SGX

 

Managing a hedging programme
Establishing trading limits
Monitoring trading positions
Market to market - P&L
Portfolio management
VaR - Value at Risk

Summary and Conclusion

 

Return to Training Matrix