Derivatives - Overview on Futures Contra

Derivatives - Overview on Futures Contracts

Level 3

15 aprilie 2021

The educational program "Risk management" takes place online as an e-learning package being completed with a webinar that will settle the knowledge acquired individually. It includes various modules, study materials, exams and certification. Students who pass the exam can choose to be registered as a Chartered Professional on the Entrima charter.

The "Energy, Energy Markets and Trading" programs available on the Entrima’s e-learning platform are specially designed to expand students' knowledge and skills on electricity. The programs cover electricity production, electricity transmission and infrastructure, electricity supply and consumption, the organization of European energy markets, the role of market participants, the regulation of European electricity markets, the role of governments, tariff and tax setting, energy products and their prices, electricity trading, energy trading platforms, asset and portfolio management, asset-backed trading, power plant optimization, power trading strategies and trading-related processes such as settlement, billing, valuation positions.

Entrima was founded (2014) to provide a solution to market participants for the influx of regulation of capital and energy markets. Various regulatory packages require staff training; education is a mandatory part of the compliance framework. Interpretation of case studies requires specific knowledge of markets, products, prices and trading, as well as value chains of metals, agricultural products, oil, gas, coal and electricity. This means that examination and certification have become important and Entrima has started to offer a learning solution to market participants

Curricula

Individual training programs carried out on the Entrima platform:

·Fundamentals of commodity markets pietei marfurilor (130 min, exam)

1. Asset classes – Types of markets

About fixed-income, equity, real estate, FX and commodities

Concerning risk-reward ratios and risk appetite

2. Commodities & commodity markets

About metals, softs & energy, but also freight, carbon & fibres

Covering relationships

3. Production, storage, transport & consumption – Up-, mid- & downstream

Concerning various types of capacity

Including availability and utilization

4. Market participants & their role

About commodity trading firms & investors

Covering risk diversification

5. Spot & forward markets – Physical & financial products

Covering the concept of price volatility

Specifics concerning electricity & natural gas - Balancing

6. Commodity derivatives – Contract specifications & settlement

Physical delivery & cash settlement.

Delivery period & delivery moment

7. Pricing of commodities – Price driving factors

Fundamental & non-fundamental price driving factors

Price analysis, including seasonality & mean-reversion

8. Commodity markets vs. Financial markets

Differences and similarities between the characteristics

A comparison is made concerning markets, products & pricing

9. The role of speculators

About the impact of speculators on price levels

Concerning politicians, policy makers & regulation

·Fundamentals of energy trading (340 min, exam)

1. Liberalisation of the Energy Markets

What is aim of liberalisation? What are the consequences?

2. Risk

Risk and return; the risk-reward ratio; quantification vs. qualification.

3. Market risk

About price risk.

4. Risk management

Identification of risk, measuring risk and control of risk.

5. Volatility

The concept volatility explained; calculation & interpretation of volatility figures.

6. Counterparty risk

Credit risk and delivery risk.

7. Credit risk management

Clearing; netting; credit limits; ratings; sleeving; systemic risk.

8. Liquidity & Liquidity risk

Market liquidity vs. funding liquidity.

9. The trading function

The role of trading business unit.

10. The trading organisation

Front, Middle & Back Office.

11. Trading

What is it and how is it organised?

12. Trading – The reasons for concluding transactions

About procurement, sales, balancing, hedging, arbitrage and speculation.

13. Pricing – The order book

How does trading take place? How are prices set? What orders are executed? When? How?

14. Trading – Order types

What order types are applied and for what reasons?

15. Trading process – Clearing

Central counterparty; clearing house & members; credit risk; margining & collateralisation.

16. Trading process – Settlement

Physical delivery versus cash settlement; settlement procedures.

17. Trading process – Transaction flow

Pre-trade, trade & post-trade processes; tasks & responsibilitis of front, mid & back office staff.

18. Trading process – ETRM system

Energy trading and risk management software; users and purposes.

19. Markets & Products – Spot vs. Forward markets

Spot/prompt vs. forward/futures markets.

20. Markets & Products – Derivatives

What are derivatives? What are they used for? And by whom?

21. Markets & Products – Forwards vs. Futures

What are the differences?

22. Markets & Products – Contract for difference

What is a CFD?

23. Markets & Products – Swaps

What is a swap?

24. Markets & Products – Options

What is a (call/put) option?

25. Trading platforms – OTC markets & trading

How is OTC trading organized? What are master agreements?

26. Trading platforms – Brokerage services

What is a broker? Inter-dealer brokers vs. broker-dealers.

27. Trading platforms – Exchange trading

What features does exchange trading have? How is it organized? Fee structure.

28. Trading platforms – Trading screens & platforms

What details are relevant to traders?

29. Pricing, price drivers & indexation

What factors drive prices? What is an index?

30. FX markets & trading

Exchange rates, Forex exposures; the role of the treasury department.

31. Accounting – Valuation

Bookkeeping & accounting rules; M-to-M.

32. Accounting – Book structure

How do firms organize internal transfers? What is a book structure? How is accounted for P/L?

33. Terminology – Upstream, midstream & downstream

Explanation of the terminology which is related to the value chain.

34. Terminology – Opening & Closing + Long & Short

What do the concepts of long or short imply? And opening or closing?

·Risc management – basic level (190 min, exam)

1. Risk management - Introduction

The basics of risk management

About policies, methodologies and organisation

2. Risk appetite

About risk tolerance and risk acceptance

Concerning risk & reward and the ratio between them

3. Market risk – Probability distribution curves

About normal, log-normal & other distributions

Covering skew, tail risk & one-time events

4. Price volatility

Covering different types of volatility (e.g. historical & implied)

Various ways to calculate volatility & how to interpret outcomes

5. Counterparty credit risk

About external clearing and internal credit limits

Concerning collateralization & margining

6. Liquidity risk

About trading activity in markets (or the lack of it) & the consequences for market

participants

7. Alpha & Beta

About the capital asset pricing model of Markovich

Covering market & company risk; systemic vs. non-systemic risk

8. Analyzing & Modeling

Concerning the modeling of (energy) asset-related businesses

About fundamental, technical, statistical & psychological analysis

9. Forecasting

About load forecasting & price forecasting

Covering production, customer off-take & contract settlement

10. Correlation & linear regression

About statistical price relationships

Concerning correlation – Model risk, incl. normality & linearity

·Risc management – intermediate level (170 min, exam)

1. Value at Risk (VaR) – The concept

About the quantification of risk; concerning risk metrics

Covering probability distribution, time horizon & confidence

2. Stochastic processes

About probability distribution curves

Stochastic processes – Jump, diffusion & jump-diffusion process

3. VaR – Parametric approach

About the most simple method to quantify risk

Concerning the variance/co-variance methodology

Examples & calculations, incl. the interpretation of the outcome

4. VaR – Historical simulation

About a very practical method to quantify risk

Including calculations & examples

5. VaR – Monte Carlo simulation

About the most complex, but flexible method to quantify risk

Concerning the creation of assumptions & generating outcomes

Including calculations & examples

6. Stress testing

About what-if, worst case & worst losing streak scenarios

About the pros & cons of stress tests

7. Expected shortfall - CVaR

About the conditional value at risk methodology

Concerning the average loss in abnormal market circumstances

Including calculations & examples

8. Implementation of VaR

Back testing

Management attention

·Risc management – advanced level (180 min, exam)

1. VaR for multi-commodity portfolios

Portfolio management; VaR for combined positions

About the aggregation of VaR at portoflio level

Concerning correlation & cross-margining

2. VaR for multi-FX portfolios

About FX exposures

Concerning risk off-setting and a natural hedge

3. Model risk

Covering assumptions and their consequences

Concerning probability distributions

About skew & skewness

4. Hedging strategies

Concerning different ways of hedging

About a perfect hedge, a value hedge & a beta hedge

Comparing the outcomes and selecting the best strategy

5. Proxy-hedging & cross-hedges

About hedging with a liquid product & basis risk

Concerning proxy selection and hedge ratios

6. Delta-hedging

About an objective & dynamic risk management approach

Concerning timing & volume – When to hedge? What volume?

7. Pros & cons of hedging

About the advantages & disadvantages of mitigating market risk

Concerning commonly used arguments to hedge or not to hedge

·Risc management – expert level (170 min, exam)

1. Risk management & the organisation

About enterprise-wide risk management (EWRM)

Concerning tools, methods and structures

Covering segregation of duties

2. Limit structures

About the combination of a position limit and a risk limit

Concerning liquidity risk management

Stochastic processes – Jump, diffusion & jump-diffusion process

3. Asset & portfolio management

Concerning the client base and contractual obligations & rights

About production capacity, the allocation of it & maintenance

4. Metrics in risk management

Concerning credit value at risk & economic capital

About value at risk, cash flow at risk & margin/earnings at risk

5. Performance management – Risk capital

Concerning capital allocation & expected return

About RAROC, RORAC & RARORAC

6. Performance management – Sharpe ratio

About measuring performance

Concerning its definition, the calculation and interpretation

Including its pros & cons

7. Performance management – Treanor ratio

About alpha & beta

Concerning its definition, the calculation and interpretation

Including its advantages & disadvantages

8. Credit risk management

About (un)expected loss & credit value at risk

Concerning probability of default, loss given default, current exposure, potential future exposure & current exposure