Extensive Instrument Coverage
The supported set of instruments (see Coverage) can be extended by combining and chaining functions to value complex, structured transactions. @ENERGY/Basics also includes templates for specialized trades such as strips of daily power and Gas Daily options. FEA regularly expands instrument coverage and publishes new spreadsheet templates.
Cutting-edge Pricing Models
You can value options using several methodologies.
- The Black-style model values options the traditional way, using lognormal price diffusion.
- The mean-reversion model also uses lognormal price diffusion, but accounts for the tendency of commodity prices to move back to a long-run average level.
- The truncated distribution model includes mean-reversion and allows you to specify a lower price bound.
- Finally, the jump-diffusion model accounts for sudden price movements that are typical in power markets.
A path simulator, included with @ENERGY/Basics, allows you to visualize the price behavior of each model, and-by specifying a payoff function-value derivatives.
Flexible Inputs
With @ENERGY functions you can:
- Value American and European options with the same function
- Specify a straddle in addition to put and call options
- Express time periods with dates or tenors
- Specify a long, short or closed position
- Specify entire price and volatility curves or spot-only observations
- Specify forward prices directly instead of convenience yields
- Switch pricing models and associated model parameters on the fly
- Specify a value date different than your system time
- Easily switch between options on physical and options on futures
- Use optional and default arguments to enter the minimal amount of information necessary to get results
Comprehensive Results
Several price and risk measures can be calculated with a single function call. The scalar risk measures represent discrete changes in value rather than rates of change. The functions also return delta, gamma, and vega risk curves, which yield the true exposures to the entire price and volatility term structure (unlike traditional risk measures that represent spot exposures only), permitting precise hedging. @ENERGY/Basics also calculates implied volatility for all single-asset options.
Calibration
You can calculate the mean-reversion rate, forward volatility curve, spot (implied) volatility curve and average spot volatility using option market prices/implied volatilities or the historical volatilities of futures.
View the @ENERGY/Basics product profile
.