{"id":1385,"date":"2014-11-15T14:34:47","date_gmt":"2014-11-15T20:34:47","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=1385"},"modified":"2014-12-05T13:03:27","modified_gmt":"2014-12-05T19:03:27","slug":"producing-a-clean-hedge-that-is-defensible","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2014\/11\/15\/producing-a-clean-hedge-that-is-defensible\/","title":{"rendered":"Producing a Clean Hedge that is Defensible"},"content":{"rendered":"

Hedging can really be a gamble if not done right.\u00a0 The latest news from OW Bunker A\/S<\/a> highlights some of the concerns from hedging.\u00a0 The stock has fallen 60% largely as a result of uncertainty in the hedge taken by the company.\u00a0\u00a0 In this case, it may very well been a clean hedge that was poorly timed (failure of analytics) or it was a \u201cdirty\u201d hedge which constituted a gamble in the market place.\u00a0\u00a0 Either way the Chief Risk Officer has been fired.<\/p>\n

I demonstrated last time in Effective Power Hedging<\/a> that PMA can be used as an analytical tool to develop a systematic hedging program.\u00a0 I want to highlight the value of PMA as a career saving tool (AKA: cover your a** (CYA) tool)\u00a0\u00a0 PMA can be customized to store and run every day.\u00a0\u00a0 All the analytical background for decision making can be pulled up.\u00a0 I am sure management at OW Bunker A\/S wish they had simulations at least demonstrating the risk\/reward they saw when they made the hedge. \u00a0\u00a0With PMA, series of simulations can be pulled to justify the transaction.\u00a0 In addition, the Risk Officer would have liked the simulation to be developed from a third-party stand point.\u00a0 PMA does offer customization, but the backbone and secret sauce is the extensive work in calibrating the model to emulate the market prices and fuel consumption.\u00a0 You can throw the kitchen sink at PMA and it will return the appropriate value given the inputs into the model.\u00a0\u00a0 PMA can be customized, but can be still considered external to your organization.<\/p>\n

A failure of identifying the risk reward profile appropriately would come from your simulation lacking enough uncertainty.\u00a0 One can use PMA to backcast to \u201cprove\u201d the simulation supported an appropriate range of uncertainty. \u00a0\u00a0For those looking to manage and perform hedging in power I am strongly suggesting you reach out to me to show how PMA can potentially save your career.\u00a0 Not only do we have the tools to help you, but we have the experience and knowledge.\u00a0\u00a0 In many cases, not hedging commodities that offer liquidity can be constituted as much gambling as a person who trades for profit.\u00a0 You can always be second guessed for your decisions.\u00a0 All Energy Consulting can give you support for your decisions or indecisions.<\/p>\n

Note on your calendar, I will be speaking at an event in Dec 10-11 on Solving Commodity Risk Exposures for the power industry<\/a>. * POSTPONED TO FEB 15 \u00a0 The event is focused on Energy and Commodity trading.\u00a0 I look forward to seeing many of you there.<\/p>\n

Your CYA Energy Analyst,<\/p>\n

David<\/p>\n

David K. Bellman
\nAll Energy Consulting LLC- \u201cIndependent analysis and opinions without a bias.\u201d
\n614-356-0484
\ndkb@allenergyconsulting.com
\n@AECDKB
\nblog:\u00a0 https:\/\/allenergyconsulting.com\/blog\/category\/market-insights\/<\/p>\n

Sign Up to AEC Free Energy Market Insights Newsletter<\/p>\n","protected":false},"excerpt":{"rendered":"

Hedging can really be a gamble if not done right.\u00a0 The latest news from OW Bunker A\/S highlights some of the concerns from hedging.\u00a0 The stock has fallen 60% largely as a result of uncertainty in the hedge taken by the company.\u00a0\u00a0 In this case, it may very well been a clean hedge that was […]<\/p>\n","protected":false},"author":1,"featured_media":216,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,6],"tags":[148,369,11],"class_list":["post-1385","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-power","tag-hedging","tag-power","tag-trading"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1385","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=1385"}],"version-history":[{"count":4,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1385\/revisions"}],"predecessor-version":[{"id":1388,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/1385\/revisions\/1388"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/216"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=1385"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=1385"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=1385"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}