FEA - Resources - Articles

FEA's staff of experts conduct research on derivatives pricing, hedging, and risk management. We try to share the fundamental technical information we develop. This section contains published articles and some works in progress on the following topics:

VaR
Derivatives Pricing and Risk Management
Market Volatility

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VaR

Stress Tests and Extreme Value Theory

Aragonés, J., C. Blanco, & K. Dowd. 2001. Incorporating Stress Tests into Market Risk Modeling. Derivatives Quarterly 7 (Spring), 44-49.
Aragonés, J., C. Blanco, & K. Dowd. 2000. The Learning Curve: Extreme Value Theory for VaR (Part 1), introductory article on EVT, first part.
Aragonés, J., C. Blanco, & K. Dowd. 2000. The Learning Curve: Extreme Value Theory for VaR (Part 2), introductory article on EVT, second part.

Backtesting

Blanco, Carlos and Maksim Oks. 2004. Backtesting VaR models. Quantitative and Qualitative Tests. Risk Desk. Volume IV. Number I.

Marginal and Incremental VaR Analysis

Garman, Mark B. 1999. Risk Management: Getting Ready to Assess your Risk, implementation notes.
Garman, Mark B. 1996. Improving on VaR, RISK, 9, (May), 61-63.
Garman, Mark B. 1997. Ending the Search for Component VaR
Garman, Mark B. 1997. Taking VAR to Pieces. RISK, 10, (Oct), 70-71.
Garman, M., Aragones, A., and Blanco, C. 1998. Value at Risk for Asian Emerging Market Equity Portfolios. ASIA RISK, (Feb 99), 36-39, published under the title "A Sector Approach."
Garman, Mark B. System and Method for Determination of Incremental Value at Risk for Securities Trading.also known as VaRdelta™. U.S. patent issued 11 Dec 98. (FEA's Value at Risk software, VaRworks and VaRlib, incorporate the VaRdelta technology.)

VaR Applications

Aragones, J., Blanco, C. and Oks, M. 2004. Macro or Top-Down approach to VaR and Expected Tail Loss Estimation. The Risk Desk, Vol. IV, No. 2 (February).
Blanco, C. 2004. Market Crises and Risk Management: How to Avoid Portfolio Blow-Ups.
Garman, Mark B.. Watershed Method for Controlling Cashflow Mapping in Value at Risk Determination, U.S. patent issued September 19, 2000.
(FEA's Value-at-Risk software, VaRworks and VaRlib, incorporate the Watershed technology.)
Garman, Mark B. 2000. Deconstructing Market Risk: Finding the Smallest Chunks, implementation notes. Also published in Derivatives Strategy, June, vol. 5, no. 6, pp.26-28.
Blanco, Carlos and Sally Blomstrom. 1999. VaR is as useful as You decide to Make It. Commodities-Now (Mar).
Blanco, Carlos and Mark B. Garman. 1998. Nuevos Avances en la Metodologia de Valor en Riesgo: Conceptos de VeRdelta y VeRbeta. [New Advances in Value at Risk: Applications of VaRdelta, VaRbeta, and Component VaR (in Spanish)]. Analisis Financiero. 1st. Quarter.
Blanco, Carlos 1998. VaR for Energy Firms. Commodities-Now (Dec).

Derivatives Pricing and Risk Management

The Risk Desk 2005. New FEA/HOC Joint Development:ProStorage. Interview with HOC’s Vipul Chugh The Risk Desk. Vol.5 #5, May.
Gray, J. and Peterson, D. 2004. Managing Physical Asset Risk with a Dynamic Programming Model. Commodities Now. March.
Gray, J. and Khandelwal, P. 2004. Towards a Realistic Gas Storage Model. Commodities Now. June.
Gray, J. and Khandelwal, P. 2004. Towards a Realistic Gas Storage Models II: Trading Strategies. Commodities Now. September.
Jimenez, C. 2003. Regulated Entities: Defensible Gas Storage Management Practices. The Risk Desk, Vol. III, No. 12 (December)
Blanco, C., Gray, J and Hazzard, M. 2003. Alternative Valuation Methods for Swaptions. The Risk Desk, Vol. III, No. 9 (September).
Blanco, C., Gray, J., and Hazzard, M. 2003. Valuing Generation Assets and Tolling Agreements using the Power Sector Model. The Risk Desk. Vol. III, No. 7
Blanco, C., Gray, J., Hazzard, M., Jimenez, C. 2003. Full Requirements Contract Valuation using Hybrid Models. The Risk Desk. Vol. III, No. 6.
Blanco, C., Gray, J., and Hazzard, M. 2003. Power Price Simulation using Hybrid Models. The Risk Desk. Vol. III, No. 5.
Blanco, C., Gray, J., and Hazzard, M. 2003. Weather Contingent Load Simulation. The Risk Desk. Vol. III, No. 4.
Blanco, C., Gray, J., and Hazzard, M. 2003. Finally ... A realistic model of power prices: The FEA Power Sector Model. The Risk Desk. Vol. III, No. 3.
Soronow, D., Pierce, M., and Wang, K. 2002. The Power Sector Model. New Frontiers. January.
Blanco, C. 2002. Volatility Smiles, Surfaces and Option Prices. November.
Blanco, C., Soronow, D., and Stefiszyn, P. 2002. Multi-Factor Models of the Forward Price Curve (II). Commodities Now. September.
Soronow, David. 2002. Modeling Spreads in Natural Gas Markets. The Risk Desk, Vol. II, No. 7 (July).
Soronow, David & Cheryl Morgan. 2002. Modeling Locational Spreads in Natural Gas Markets. The Risk Desk, Vol. II, No. 5 (July).
Blanco, C., Soronow, D., and Stefiszyn, P. 2002. Multi-Factor Models for Forward Curve Analysis: An Introduction to Principal Component Analysis. Commodities Now. June.
Blanco, Carlos & Paul Stefiszyn. 2002. Valuing Natural Gas Storage Using Seasonal Principal Component Analysis. The Risk Desk. Vol. II, No. 3.
Blanco, Carlos & Paul Stefiszyn. 2002. Multi-Factor Models for Forward Curve Analysis: An Introduction to Principal Component Analysis (I). The Risk Desk. Vol. II, No. 2.
Blanco, Carlos. 2002. Modelling Energy Derivatives (Part I), (Part II), (Part III). Presentation for PRMIA, Chicago Chapter. March.
Blanco, Carlos & David Soronow. 2001. Mean Reverting Processes - Energy Price Processes Used For Derivatives Pricing & Risk Management. Commodities Now. June.
Blanco, Carlos & David Soronow. 2001. Jump Diffusion Processes - Energy Price Processes Used for Derivatives Pricing & Risk Management. Commodities Now. September.
Blanco, Carlos & David Soronow. 2001. Energy Price Processes Used for Derivatives Pricing & Risk Management (I). Commodities Now. March.
Blanco, C., R. Erickson, and M. Garman. 2000. Weather Derivatives: Instruments and Pricing Issues.
Garman, Mark B. 1998. Managing the Risk of Fixed Assets. (Jul 4-5) Derivatives Strategy.
Garman, Mark B. 1997. Charm School. Risk Waters Group, v5, (Jul-Aug), 52-53.
Barbieri, Angelo and Mark B.Garman. 1996. Understanding the Valuation of Swing Contracts. Energy and Power Risk Management, v1, (Oct).
Garman, Mark B. 1992. Spread the Load. Risk Waters Group, v5, (Dec), 83-84.

Market Volatility

Garman, Mark B.and Michael J. Klass. 1992. The Estimation of Security Price Volatility from Newspaper Data. An updated version of work originally titled "On the Estimation of Security Price Volatilities from Historical Data," published in the Journal of Business, 1980, vol. 53, no. 1, 67-78.