Focusing on advanced financial topics related to energy markets, the main objective of this module is threefold: to provide an in-depth theoretical coverage, to develop a critical discussion of empirical and statistical implications of the theoretical approaches, and to build hands-on computing experience using R and other statistical software. By the end of the module, students will be able to appreciate theconnections between energy markets and financial markets, the empirical methods used to test these connections, and to draw conclusions on financial speculation and arbitrage opportunities arising in those markets.
Energy markets and Financial Options and Stocks: terminology, types, calls, puts, European options, American options, long and short positions, markets, spreads, collars, butterflies. Brent oil options, electricity options, natural gas options.
Financial options pricing. Binomial, and Black and Scholes (1973). Implied volatility. Use of the R language to value financial options on energy stocks and renewable
Electricity options and hedging financial risks faced by energy producers.
Energy stocks, options on energy stocks. Linkages between energy stocks and options on energy stocks. Linkages between oil prices and stock prices. Empirical
applications. Using statistical software for empirical applications.
Applied portfolio analysis for energy stocks using statistical software: Energy stock portfolios: Expected returns, risks. Efficient energy stock based portfolios. Risk- pricing under equilibrium. Energy betas. Finding the best financial investments in energy stock portfolios.
Risks faced by investors in energy stocks. Measurement of risks using contemporary approaches. Hedging against those risks using energy derivatives markets.
CO2 emissions and financial risk. 2015 Paris Climate Accord. Transmission links between climate risk and financial risk, physical risks, transition risks, and empirical evidence. Banking profitability and climate risks. Use of a statistical package to estimate the relation between CO2 emissions and financial risk. Climate stress testing.