Power derivatives are financial risk management tools that have been used over time in the energy sector, based on an underlying energy asset. The remarkable increase of the over-the-counter transactions in this field forces the financial institutions to include the cost of counterparty in the pricing framework. The goal of our research is to present measurement formulas for quoting “completed” power derivatives, i.e. instruments embracing the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Our proposal consists in evaluating derivatives completed of innovative collaterals, such as Credit value adjustment (CVA) and bilateral CVA (BCVA). We stress the approach by empirical results.

Counterparty risk evaluation in power derivatives

D'AMATO, Valeria;
2016

Abstract

Power derivatives are financial risk management tools that have been used over time in the energy sector, based on an underlying energy asset. The remarkable increase of the over-the-counter transactions in this field forces the financial institutions to include the cost of counterparty in the pricing framework. The goal of our research is to present measurement formulas for quoting “completed” power derivatives, i.e. instruments embracing the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Our proposal consists in evaluating derivatives completed of innovative collaterals, such as Credit value adjustment (CVA) and bilateral CVA (BCVA). We stress the approach by empirical results.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11386/4687734
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