Energy Derivatives: Pricing and Risk Management

One of our main objectives in writing Energy Derivatives: Pricing and Risk Management has been to bring together as many of the various approaches for the pricing and risk management of energy derivatives as possible, to discuss in-depth the models, and to show how they relate to each other. In this way, we hope to help the reader to analyse the different models, price a wide range of energy derivatives, or to build a risk management system which uses a consistent modelling framework. We believe that for practitioners this last point is very important and we continue to stress in our articles and presentations the dangers of using flawed risk management and pricing systems. Using ad-hoc and inconsistent models for different instruments and markets gives arbitrage opportunities to your competitors. However, it is not our wish to concentrate on one particular model or models, to the exclusion of the others because we believe that the choice should rest with the user (although it will probably be clear from our discussions which model(s) we prefer). We therefore try and give as clear account as possible of the advantage and disadvantages of all the models so that the reader can make an informed choice as to the models which best suit their needs.