TTA is a Bronze sponsor at this year’s Energy Risk & Trading Conference to be held at the Sydney Harbour Marriot in Sydney from the 24th to the 26th of October 2006. TTA’s Chief Quantitative Analyst, Dr. Alex Radchik will be presenting a research paper outlining an elegant model for the credit adjustment of Electricity Swaps. Extensive study by TTA has uncovered pitfalls in current methodologies and TTA proposes some simple remedies. For a full copy of the presentation please contact TTA.
Before starting the discussion on the advantages or disadvantages of various modelling approaches in the Australian electricity market, let’s make a philosophical intermission. What should be the purpose of mathematical modelling? There is another, rather unrelated question to ask: why is there no Nobel Prize in Mathematics when even lifetime enemies may win a Noble Peace Prize?
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It is the Year 2020. Just one week ago Bob Carr Junior abolished the Electricity Tariff Equalisation Fund (ETEF). All technically developed nations (including Zimbabwe and Ukraine) have signed the Basel V International Accord establishing regulatory capital rules for energy producers and traders. Those who do not comply are not allowed to deliver energy to their customers or trade on the spot market and NEMMCO is forced to wipe them out of their dispatch software. (more…)
Recently, global financial markets have witnessed a rapid escalation in the popularity and the trading of weather derivatives. These derivatives are predominantly temperature-based but can include derivatives written against other weather phenomena such as precipitation, wind, frost and snowfall.
The weather derivative market in the U.S. has grown from around US$500 million in 1998 to over US$ 12 billion in 2003, and is still growing. Such growth has been attributed to the deregulation of energy markets and the significant effect that weather risk has on the volatility of revenue generated by a large number of companies. Significantly, these companies include electricity generators and retailers. Indeed, the weather derivative market in the U.S. was stimulated by the mild winters of 1997 and 1998, the consequence of the ‘El-Nino’ phenomenon. The associated potential for corporate earnings decline signalled the need for a hedge against abnormal weather behaviour.
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