Power – Asset-backed Trading

Short description

Dynamically hedging a gas-fired power plant.

Capacity

You act in the role of a power trader at a utility.
As an asset & portfolio trader you are responsible to hedge the exposure arising from the refinery.
You act in the capacity of aggressor.

Task

Your task is to setup a hedge (sell short the spark spread (futures spread)) at an attractive spark spread level. Thereafter, when the spread has decreased significantly, liquidate the hedge (hence, buy back the spark spread that you initially shold short). This way, a financial result is realised. Next, if the market has moved again, in a favourable way, a new hedge can be setup (sell short a spark spread (futures spread)), preferably (again) at an attractive spark spread level. Thereafter, when the spread has decreased significantly, the spread position can be liquidated again. And this process can be repeated over-and-over again.

Note: Ideally, the liquidation of the spark spread position takes place when the spread has gone down to zero, or even turned negative. This, however, may not happen (soon). Alternatively, Delta-hedging is applied.

Objective

The aim of this simulation is manifold, amongst others to learn about dynamic hedging and to master timing.

Conclusion

At the end of the simulation, analyse your performance. See what you have done, at which price levels, and when you have done this and whether it could have been optimised. This way, you learn and optimise your competences.

 

Our Labels

Entrima and Market Abuse Centre (MAC) are the two labels we operate to provide learning services for professionals in the commodity & energy markets.
 
 


Content & Context

Entrima’s mission is to transfer knowledge regarding the business, controls & operations of parties in (or relating to) the wholesale markets.

www.entrima.org


Conduct & Culture

MAC’s mission is to facilitate the prevention & detection of misconduct and to foster proper behaviour in organisations. This is achieved via training, periodic updates and increased awareness.

www.marketabusecentre.com