Average Reviews:
(More customer reviews)I am currently working as a quant in one of the larger energy companies.
All in all, I find the book among the most versatile and to the point in day to day challenges for quants in the energy market. It has a really good balance and connection between theory, real life markets and challenges and empirical findings. You should be fairly accustomed to Stochastic calculus (e.g. Ito-calc) to benefit from the technical chapters in the book.
The book is very systematic and pedagogic in its form combined with a very theoretic core. Opposed to many similar books, the text around the mathematics is guiding you in your decisions and literally full of references which will help you further in solving problems in the real world. An especially good thing about the text is all small hints on how you should set up the model to stay out of trouble on a later stage in the modeling. May save you a lot of work and irritations on a later stage.
The book looks at two different model approaches (geometric and arithmetic), and gives good information about each approach throughout the text, such as limitations, advantages and parameter estimation. It also uses three markets as example markets: power, gas and temperature. All markets are modeled and discussed extensively, and at this level of mathematical modeling I believe this is the most concise treatment of weather derivatives publicly available. It has a chapter alone dedicated to modeling of weather derivatives, with empirical results.
The book explains forward curve generation and smoothing principles in details, and also gives estimated parameters for a real life example. It has own sections for the market price of risk, both from the practical and theoretical side, and also shows how to model spikes and the authors success with different approaches catching the heavy tales and spikes.
The book takes you through options and hedging such that it is easy applicable to many of the deal structures containing flex or optionality. It includes theory and empirical results for standard options with jumps, but also spread and Asian options, and a direct approach for spark spread options.
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