ABSTRACT
The Chapter contains three case studies that represent exhaustive applications of the theory explained in the previous chapters. The first case study regards an intermediary company that buys electricity from a producer and sells it to the final consumer. This kind of company is clearly exposed to the price risk due to the high variability of electricity prices. In order to hedge this risk, the company stipulates a forward contract with the final consumer to lock in the power-selling price at a specific future date, and it buys a call option to protect against an increase of the purchase price from the producer side. In particular, we introduce a model for the electricity spot price that captures spikes, mean reversion and seasonality. In the second case study, a financial operator needs to choose the best model to describe the evolution of the spark spread; we investigate the characteristics of the electricity and the natural gas in order to find the most suitable pricing models. Finally, we propose a statistical arbitrage methodology to develop strategies for a portfolio of crude oils. This portfolio reveals mean reversion and implicit trading strategies are applied to make profit.
