This BTS training course on Forecasting the Prices of Crude-Oil, Natural Gas and Refined Products will develop an understanding of pricing, risk management, asset valuation and derivatives within the energy markets:

• Learn to use financial models to analyze and forecast energy prices; extrapolate forward prices beyond the liquidity tenor
• Understand the risk of and return from futures and options contracts on energy commodities
• Manage and optimize your organization’s energy risk exposure
• Learn to estimate and calculate volatility in energy prices
• Utilize real options theory to value energy assets; use information from futures / option prices to make optimal production decisions: Optimal timing for extraction, optimal rate at which to extract oil (gas) from a field; value oil fields, pipelines and storage facilities, power plants

The objectives of this training course are to introduce the computation and application of forecast prices in the energy industry, with a focus on the oil, natural gas and refined products segments. Inter alia, the course presents the basic statistical tools required to operationalize these concepts.

At the end of this training course, participants will learn to:

• Use financial models to analyze and forecast energy prices; extrapolate forward prices beyond the liquidity tenor
• Understand the risk of and return from futures and options contracts on energy commodities
• Manage and optimize their corporations’ energy risk exposure
• Estimate expected returns and calculate volatility in energy prices
• Obtain a comprehensive understanding of the financial-economics techniques used to forecast prices
• Apply option valuation techniques to the energy markets
• Utilize real options theory to value energy assets; use information from futures / option prices to make optimal production decisions: Optimal timing for extraction, optimal rate at which to extract oil (gas) from a field; value oil fields, pipelines and storage facilities, power plants

This BTS training course is suitable to a wide range of professionals but will greatly benefit individuals working in financial analysis, valuation, trading, risk management or quantitative analysis positions with oil and gas exploration companies; investment and commercial banking, consulting, and financial services firms in the energy sector; production and distribution companies; energy trading firms; and corporations outside the energy industry with a significant cost exposure to energy prices.

In terms of job titles, these individuals include:

• Financial Analysts
• Quantitative Analysts or Researchers
• Energy Traders
• Risk Managers
• Commercial and Investment Bankers dealing with Commodities
• Consultants in the Commodity Arena
• Government and Regulatory Officials with responsibilities for the Energy Sector

This training course will be presented through a combination of following methodologies:

• Clear presentation of notes with the requisite supportive analytics
• Detailed presentation of the relevant empirical regularities / stylized facts of the energy markets
• Presentation of several case studies designed to exemplify the application of risk-management and valuation principles
• Interspersed in the lectures are relevant problem-sets, designed to afford participants with the opportunity to apply the principles conveyed and see their implementation
• Dissemination to and sharing with participants critical spreadsheets that will permit them to address issues within the course, as well as utilize these concepts once they have completed the course

DAY 1

The Current State of the Equity & Commodity Markets

• Measuring Nervousness / Uncertainty of Equity and Commodity Markets
• The Crude-Oil Markets: Level and Slope of Crude-Oil Futures Markets; Impact of Economic, Financial and Geopolitical Events on Implied Volatilities in the Crude-Oil Market
• Impact of Seasonality on Global NatGas Markets
• Future Inflation Rates
• The Refining Spread and Retail Gasoline Prices
• The Domestic NatGas Market: The Impact of Seasonality
• The March / April 2007 Futures Contract

DAY 2

A Primer on the Interest-Rate Markets 

• Financial Markets’ “Message from Markets”; Interpret bond-market moves in conjunction with those in equity markets
• Empirical Regularities of Global Fixed Income Markets
• Understanding the Fundamentals of Bond Valuation
• Eurodollar Futures and Interest Rate Swaps
• Duration and Convexity: Hedging Interest Rate Exposure
• Interest-Rate Volatility
• Forecasting Future Interest Rates Using
• A Financial-economics Approach
• Practitioners' Approaches

DAY 3

Overview of Statistical Concepts 

• Basic Statistical Concepts: Average and Volatility; Stationarity of Time Variables
• Regression Analysis
• Using Solver to Solve Constrained Optimization Problems

DAY 4

Forward, Futures and Swap Contracts in Energy Markets

• Fundamentals of Forwards and Futures Contracts: Definition, Payoff Diagram, Pricing by Arbitrage
• Forward / Futures Prices and Forecast Prices
• Commodity Swaps
• The Key Difference between Real-Asset Valuation and Expected Value

DAY 5 AND 6

Part I:  Option Pricing 

• Payoffs and Put-Call Parity
• Black-Scholes Formula
• Option “Sensitivities” (the “Greeks”): Delta and Gamma
• The Binomial Model and the Valuation of American-Style Options
• Real Options in Energy Markets: Power Plants as a Strip of Spark Spread Options; Oil Fields as the Valuation of an Extraction Option

DAY 6, PART II AND DAY 7, PART I:  THE STATISTICS OF THE PRICE PROCESSES IN ENERGY MARKETS 

• Historical Volatility: The Term Structure of Volatility (TSOV)
• Estimating Volatility from Market Prices of Options in Energy Markets
• Historical or Implied Vols?
• Estimating a Mean-Reverting Process
• Characterizing the Volatility “Surface”Across Time and Strike
• Jump-Diffusion Process
• The Need to Extrapolate in Energy Finance: Valuation of Long-Dated Real Assets and Financial Structured Products; Extrapolating Crude-Oil Prices; Extrapolating Natural-Gas Prices; Extrapolating the Term Structure of Volatilities (TSOV); Extrapolating Correlations

DAY 7, PART II AND DAY 8:  FORECASTING THE PRICES OF OIL, NATURAL-GAS AND REFINED PRODUCTS 

• The “Market Price of Risk”:Estimating a Risk Premium in Finance, and Applying it to Energy Prices
• How Can Use Regression Analysis to Fortify Our Understanding of Financial Markets’ Perspective on Forecast Prices?
• Where Can We Observe Forecast Prices?
• What is the Difference between Futures Prices and Forecast Prices?
• What is the Capital Asset Pricing Model (CAPM) and How Can We Use it to Forecast Oil Prices?
• Applying a Jump-Diffusion Model to Oil Futures Options
• Using the Market Price of Risk to Implement Risk-Management from a Corporate Perspective

DAYS 9 AND 10

Energy Derivative Products:  The Role of Structuring, Calibration, Valuation and Hedging in Profitable Market-Making 

• Commercial Structured Products
• Categorizing Derivative Products: Option Collars, Average Options, Spread Options, Swing Options, Weather Derivatives, Commodity-linked Bonds; “Swing”Options; Weather Derivatives
• Structuring and Valuing Option Collars
• Structuring and Valuing Average (Asian) Options
• Example of Calibration:  Using Vanilla Options to Determine the Value of Volatility for Valuation of Average Options
• Non-Commercial Structured Products

BTS attendance certificate will be issued to all attendees completing minimum of 80% of the total course duration.