15-16 November, 2012, AmsterdamReal Options

Jeroen Koster, Mercurious Course Leader

This is a practical, hands-on course in Real Options, which we’ve constructed to be within the grasp of non-mathematical experts.

IntroductionWe designed this two day course specifi cally to instruct participants in the areas of outright, embedded and real options, physical assets, hedging future cash fl ows of assets, optimization of allocation of assets, fl exibility, pricing of options, valuation of real options and Greek variables as indicators for sensitivities.

The course is about real options and while statistics are important in this area of expertise and there is a bit of mathematics in the course material, in this course things are explained so that everybody will be able to understand, regardless of their mathematical abilities. This does not aff ect the level of the course in any negative way, but allows us to explain all subjects in an even more in-depth manner than you can imagine.

Learning objectivesAcquiring insight and knowledge of:

▶ Option and options theory ▶ Options valuation and valuation of physical assets ▶ Scenario analysis ▶ Sensitivity analysis of cash fl ows ▶ Greeks variablesCOU

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Who should attend?This program was specifi cally developed for Traders, Asset & Portfolio managers, Quants, Risk managers and Analysts, but more it is also suitable to and helpful for:

▶ Front, Mid and Back offi ce staff ▶ Originators ▶ ICT experts and Project managers ▶ Legal staff and Compliance offi cers ▶ Staff of the Finance department ▶ Controllers and Accountants

TrainingThe training is based on a strong interactive approach in which the contribution of participants is of utmost importance. Theory and practice are explained and expounded using offi cial defi nitions, scientifi c theories, practical exercises, cases and simulations.

Documentation Participants will be provided with a syllabus with study material for this specifi c program. The syllabus contains all relevant documents including power point slides, fact sheets, cases and exercises.

Real Options

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ProgramDAY 1Session 1: Options

▶ Call & put options ▷ Premium ▷ Strike price ▷ Options style ▪ American, European & Asian Style, and more ▪ Plain vanilla versus Exotic options

▶ Options ▶ Outright options ▶ Embedded options ▶ Real options ▶ Flexibility as option

▷ 1-sided right vs. 2-sided obligation ▷ The real options approach

Session 2:Option valuation

▶ Valuation models ▷ Black & Scholes ▷ Binomial models ▪ Trees

▶ Disadvantages of models ▷ Assumptions do not represent real life

▶ Skew ▷ Skewness of normal distributed curve ▷ Tail risk ▷ Volatility smile ▷ Positive skew ▷ Negative skew

▶ Kurtosis ▷ Lepto-kurtosis ▷ Height of the mean

▶ Impact on options premiums ▷ Volatility curve ▷ Volatility smile

Exercises ▶ Calculation of option value via binomial tree ▶ Calculation of option value with normal distribution ▶ Calculation of option value with log-normal distribution ▶ Calculation of option value with skew

Session 3: Power plants as real options

▶ Power plants as sequence of call options on the spark/dark spread

▶ Asset-backed trading ▷ Spark spread optimization ▷ Delta hedging ▷ Strategy to lock in ▷ Dynamic hedging ▷ Objective approach ▷ Subjective approach ▪ Under/over-hedging ▷ Value of real option ▪ Time value ▪ Intrinsic value ▪ Volatility of the spark spread

Exercise: Power plants as real options

Session 4:Gas storages

▶ Gas storage ▷ Sequence of time-spread options

▶ Locking in the value of the gas asset ▷ Hedging process ▪ Setting up hedge

- Choose amount/signifi cance ▪ Unwinding hedge

- Choose signifi cance ▪ Repeat sequence ▪ Timing as critical element ▪ View on the market

Exercise: Gas storage valuationSimulation: Trading simulation to lock in and optimize asset valueExcel: Option with 2 legs, 2 prices & 2 volatilities

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▶ Gas transport capacity ▷ String of location-spread options

▶ Power transport capacity ▷ Series of location-spread options

▶ Basis trading ▷ Trading the basis

Session 6:Greek variables

▶ Sensitivity analysis ▷ Delta; What is it? What is its interpretation? How to apply to assets?

▷ Gamma; What is it? What is its interpretation? How to apply?

▷ Vega; the impact of volatility ▷ Theta; premium decay over time ▷ Rho; interest rate sensitivity

▶ Scenario analysis versus sensitivity analysis ▶ Combined reporting ▶ Matrix

Simulation: Trading options & managing fl exibility in energy portfolios

Session 7: Managing Greeks in large portfolios – Part 1

▶ Creating an overview of all Greeks ▶ Combining this overview with scenario analysis ▶ Steering exposures by doing transactions

▷ What deals are required or preferable?

Exercises: ▶ Greeks management for an energy portfolio of an energy producer.

▶ Power options (estimate the Greeks of the individual assets as well as the Greeks of the overall position; over three moments in time: now, a week before expiration, as well as at expiration).

Session 8: Managing Greeks in large portfolios – Part 2

▶ Management of an integrated portfolio of options ▷ Calculate (or estimate) the Greeks ▷ Create a matrix which incorporates both: ▪ Scenario analysis, and ▪ Sensitivity analysis

Exercise: Analysis of a portfolio of power options

Jeroen Koster is the co-author of the book entitled “Refacing Risk, building a fortune”. After fi nishing high school, Jeroen Koster studied Applied Mathematicsat the Technical University (TU) of Twente. In 1996 he became a professional Options Trader (Market Maker) on the trading-fl oor of the

European Option Exchange (EOE) in Amsterdam.

For a number of years thereafter Jeroen traded in various option classes, both single stocks and indices and FX. Subsequently he became responsible for the education of new hires and trainees at the European Option Exchange. Following the new millennium and the technical improvements and challenges it brought along, including the migration from open-outcry to screen-based trading on electronic platforms, Jeroen became the Head of Trading at the trading fi rm and specialist Van der Moolen.

Jeroen has also worked as a Corporate Trainer at the

international derivatives trading fi rm All Options, in which position he was responsible for training staff for the roles of Derivatives Trader, (senior) Traders and Back Offi ce employees. The training centered onto several subjects including corporate actions, risk management, compliance, volatility and trading strategies.

With over two decades worth of experience in the energy sector, Jeroen Koster is highly skilled and formally schooled in the nuances of this exciting industry. His experience and passion for passing on knowledge really make him an excellent tutor.

Jeroen Koster Trainer-Consultant Mercurious

LEADERLEADERLEADERCOURSE LEADER

Jeroen Koster is the co-author of the book entitled “Refacing Risk, building a fortune”.

After fi nishing high school, Jeroen Koster studied Applied Mathematicsat the Technical University (TU) of Twente. In 1996 he became a professional Options Trader (Market Maker) on the trading-fl oor of the

LANGUAGEThe workshop will be delivered in English.

DATE 15-16 November 2012, Amsterdam, The Netherlands

SCHEDULEEach day starts at 09.00 and finishes at 17.00hrs.

REGISTRATIONhttp://www.energy-expert-network.com/coursesE-mail: Johanna.oberg@energy-expert-network.comPhone:+46 (0) 85 333 2599

FEESEarly Bird 1990€ (register before 4 October) + Dutch VATStandard price 2490€ + Dutch VAT

MULTIPLE REGISTRATION DISCOUNTRegister two or more people from the same companyand get a 10% discount per person.

FOOD AND BEVERAGEFood and beverages will be provided to theparticipants during the day. Specific wishes can besubmitted to the organization.

DOCUMENTATIONParticipants receive documentation, calculations andexercises in a manual.

ABOUT THE ORGANIZERS

ENERGY EXPERT NETWORKThe Energy Expert Network is a network of experts and hands-on energy market participants that provides companies with tailored courses.

The Energy Expert Network consists of the ‘best of the best’ industry experts, well known for their knowledge and experience in teaching energy industry professionals. Energy Expert Network also provide open courses on fixed dates in co-operation with external experts.