Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Least Squares Monte Carlo and Energy Markets Matteo Tesser matteo.tesser@fairmat.com Fairmat SRL 10/05/2013 The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Agenda Introduction 1 Least-Squares Monte Carlo 2 Fairmat and Open Source 3 The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Agenda Introduction 1 Least-Squares Monte Carlo 2 Fairmat and Open Source 3 The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Agenda Introduction 1 Least-Squares Monte Carlo 2 Fairmat and Open Source 3 The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Agenda Introduction 1 Least-Squares Monte Carlo 2 Fairmat and Open Source 3 The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Energy Markets and Quantitative Methods Liberalization of energy markets has incremented the number of players and has introduced several distribution and procurement alternatives. Producers have the possibility of offering bilateral contracts or of bidding offers to the markets Consumers, aside entering into bilateral contracts have a wider choice of suppliers including going directly to the market. Financial products linked to energy are becoming more and more wide spread (see swing options) All the available alternatives need quantitative assessment in term of costs and risks The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Energy Markets and Quantitative Methods Liberalization of energy markets has incremented the number of players and has introduced several distribution and procurement alternatives. Producers have the possibility of offering bilateral contracts or of bidding offers to the markets Consumers, aside entering into bilateral contracts have a wider choice of suppliers including going directly to the market. Financial products linked to energy are becoming more and more wide spread (see swing options) All the available alternatives need quantitative assessment in term of costs and risks The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Energy Markets and Quantitative Methods Liberalization of energy markets has incremented the number of players and has introduced several distribution and procurement alternatives. Producers have the possibility of offering bilateral contracts or of bidding offers to the markets Consumers, aside entering into bilateral contracts have a wider choice of suppliers including going directly to the market. Financial products linked to energy are becoming more and more wide spread (see swing options) All the available alternatives need quantitative assessment in term of costs and risks The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Energy Markets and Quantitative Methods Liberalization of energy markets has incremented the number of players and has introduced several distribution and procurement alternatives. Producers have the possibility of offering bilateral contracts or of bidding offers to the markets Consumers, aside entering into bilateral contracts have a wider choice of suppliers including going directly to the market. Financial products linked to energy are becoming more and more wide spread (see swing options) All the available alternatives need quantitative assessment in term of costs and risks The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Valuation of flexible contracts Large consumers usually has several alternatives including the capability of self generating energy and the access to flexible contracts (containing contingent decisions). The value (and the risk) of flexibility must be assessed: to do that the decision maker must find the schedule of contingent decisions for current and future dates that maximizes the expected discounted rewards. The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Valuation of flexible contracts Large consumers usually has several alternatives including the capability of self generating energy and the access to flexible contracts (containing contingent decisions). The value (and the risk) of flexibility must be assessed: to do that the decision maker must find the schedule of contingent decisions for current and future dates that maximizes the expected discounted rewards. The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Valuation of flexible contracts Large consumers usually has several alternatives including the capability of self generating energy and the access to flexible contracts (containing contingent decisions). The value (and the risk) of flexibility must be assessed: to do that the decision maker must find the schedule of contingent decisions for current and future dates that maximizes the expected discounted rewards. The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Valuation of flexible contracts Large consumers usually has several alternatives including the capability of self generating energy and the access to flexible contracts (containing contingent decisions). The value (and the risk) of flexibility must be assessed: to do that the decision maker must find the schedule of contingent decisions for current and future dates that maximizes the expected discounted rewards. The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Optimal Energy Procurement & Integrated risk management Simulate in the same framework the cash-flows coming from the business activities and the (stochastic) cost from the energy procurement Price/Evaluate contracts (Risk Neutral) Evaluate cash-flows at risk (CFaR) under historical probabilities Optimize with respect to the available procurement alternatives Appropriate frameworks: Multi-stage stochastic programming (Approximated) dynamic programming and Markov Decision Processes The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Optimal Energy Procurement & Integrated risk management Simulate in the same framework the cash-flows coming from the business activities and the (stochastic) cost from the energy procurement Price/Evaluate contracts (Risk Neutral) Evaluate cash-flows at risk (CFaR) under historical probabilities Optimize with respect to the available procurement alternatives Appropriate frameworks: Multi-stage stochastic programming (Approximated) dynamic programming and Markov Decision Processes The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
Introduction Least-Squares Monte Carlo Fairmat and Open Source Riferimenti bibliografici Model specification Let T = { t k , k = 1 , ..., n } , with t 0 = 0 and t n our planning horizon, be a date sequence. With r is indicated the discounting rate, and y represents an exogenous state variable. x = ( y , o , s ) is our augmented state where we add operating modes o , and other endogenous state variables s . With f ( x , a ) we indicate a function that provides a new state given the action a . at dates t k ∈ T , we have the stochastic cash-flows π k ( x , a ) function of our decision a ∈ A . Goal: find δ ∗ such � n � � e − rt k π i ( x k , δ k ) max V = E , δ k =0 s . t . x ′ = f ( x , a ) The contents of this presentation are property of Fairmat SRL, editing and distribution are forbidden
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