Analytical Tools of Energy Risk Management

The last twenty years have witnessed the deregulation of the energy markets, particularly the natural gas and power markets. The direct result of the deregulation has been the need for development of analytical tools that would allow market participants to manage new risks induced by the deregulated markets and to protect the value of energy assets, such as power plants, gas storage and pipelines, from exposure to market price fluctuations. This presentation describes various analytical methods developed for managing risk in energy markets. First, it introduces stochastic processes designed to capture unique features of energy price evolution. Then, it describes complex optimization problems arising in energy applications. Finally, it discusses numerical algorithms developed for solving problems arising in energy risk management.

Alexander Eydeland, Morgan Stanley

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