etrm is an R package with tools for trading and financial risk
management in energy markets. The package currently offer tools for two
main activities:
- Construction of forward market curves
- Portfolio insurance trading strategies for energy price risk management
The package is described in further detail in the R-journal paper etrm: Energy Trading and Risk Management in R
If you use etrm in a scientific publication, we would appreciate using the following citation:
@article{RJ-2022-013,
author = {Sleire, Anders D.},
title = {The R Journal: etrm: Energy Trading and Risk Management in R},
journal = {The R Journal},
year = {2022},
note = {https://doi.org/10.32614/RJ-2022-013},
doi = {10.32614/RJ-2022-013},
volume = {14},
issue = {1},
issn = {2073-4859},
pages = {320-341}
}
The stable version can be installed from CRAN with:
install.packages('etrm', dependencies = TRUE)The development version can be installed from GitHub with:
devtools::install_github("sleire/etrm")The following sections provide examples using some of the synthetic data sets included in the package.
A typical characteristic of energy commodities such as electricity and
natural gas is that delivery takes place over a period in time, not on a
single date. Listed futures contracts cover standardized periods, such
as “Week”, “Month”, “Quarter”, “Season” or “Year”. An example of such
standard energy market contracts can be found in the package data set
powfutures130513.
#> Include Contract Start End Closing
#> 1 TRUE W21-13 2013-05-20 2013-05-26 33.65
#> 2 TRUE W22-13 2013-05-27 2013-06-02 35.77
#> 3 TRUE W23-13 2013-06-03 2013-06-09 36.58
#> 4 TRUE W24-13 2013-06-10 2013-06-16 35.93
#> 5 TRUE W25-13 2013-06-17 2013-06-23 33.14
#> 6 TRUE W26-13 2013-06-24 2013-06-30 34.16
#> 7 FALSE MJUN-13 2013-06-01 2013-06-30 35.35
#> 8 TRUE MJUL-13 2013-07-01 2013-07-31 33.14
#> 9 TRUE MAUG-13 2013-08-01 2013-08-31 35.72
#> 10 TRUE MSEP-13 2013-09-01 2013-09-30 38.41
#> 11 TRUE MOCT-13 2013-10-01 2013-10-31 38.81
#> 12 TRUE MNOV-13 2013-11-01 2013-11-30 40.94
#> 13 FALSE Q3-13 2013-07-01 2013-09-30 35.72
#> 14 TRUE Q4-13 2013-10-01 2013-12-31 40.53
#> 15 TRUE Q1-14 2014-01-01 2014-03-31 42.40
#> 16 TRUE Q2-14 2014-04-01 2014-06-30 33.39
#> 17 TRUE Q3-14 2014-07-01 2014-09-30 31.78
#> 18 TRUE Q4-14 2014-10-01 2014-12-31 38.25
#> 19 TRUE Q1-15 2015-01-01 2015-03-31 40.73
#> 20 TRUE Q2-15 2015-04-01 2015-06-30 32.64
#> 21 TRUE Q3-15 2015-07-01 2015-09-30 30.87
#> 22 TRUE Q4-15 2015-10-01 2015-12-31 37.22
#> 23 FALSE CAL-14 2014-01-01 2014-12-31 36.43
#> 24 FALSE CAL-15 2015-01-01 2015-12-31 35.12
#> 25 TRUE CAL-16 2016-01-01 2016-12-31 34.10
#> 26 FALSE CAL-17 2017-01-01 2017-12-31 35.22
#> 27 FALSE CAL-18 2018-01-01 2018-12-31 36.36
#> 28 FALSE CAL-19 2019-01-01 2019-12-31 37.44
#> 29 FALSE CAL-20 2020-01-01 2020-12-31 38.58
#> 30 FALSE CAL-21 2021-01-01 2021-12-31 39.73
#> 31 FALSE CAL-22 2022-01-01 2022-12-31 40.93
#> 32 FALSE CAL-23 2023-01-01 2023-12-31 42.15
The forward curve is an essential tool for pricing non-standard OTC
contracts having any settlement period. The function msfc() will
create an instance of the S4 class MSFC with generic methods plot(),
summary() and show(). In addition to the arguments from the list of
contracts, the user may also provide a prior function to the
calculation. This is relevant for markets with strong seasonality, such
as power markets. The default value is prior = 0, but the user can
provide any vector expressing a belief regarding the market to be
combined with the observed prices. In the example below we have used a
simple seasonal prior from the package powpriors130513 data set.
fwd_fut_wpri <- msfc(tdate = as.Date("2013-05-13"), # trading date
include = powfutures130513$Include, # vector with TRUE/FALSE, include contract?
contract = powfutures130513$Contract, # vector with contract names
sdate = powfutures130513$Start, # vector with contract start dates
edate = powfutures130513$End, # vector with contract end dates
f = powfutures130513$Closing, # vector with contract closing prices
prior = powpriors130513$mod.prior # prior function
)
plot(fwd_fut_wpri, legend = "", title = "MSFC with prior for power futures 2013-05-13")
The forward curve is calculated with the function
f(t) = λ(t) + ϵ(t)
where λ(t) is the prior supplied by the user and ϵ(t) is an
adjustment function taking the observed prices into account. The
msfc() function finds the smoothest possible adjustment function by
minimizing the mean squared value of a spline function, while ensuring
that the average value of the curve f(t) is equal to contract prices
used in the calculation for the respective time intervals. The number of
polynomials used in the spline along with head(prior) and computed
prices based on the curve are available with the summary() method:
summary(fwd_fut_wpri)
#> $Description
#> [1] "MSFC of length 1329 built with 41 polynomials at trade date 2013-05-13"
#>
#> $PriorFunc
#> [1] 30.10842 30.16396 30.19572 30.16144 29.06268 28.93272
#>
#> $BenchSheet
#> Include Contract From To Price Comp
#> 1 TRUE W21-13 2013-05-20 2013-05-26 33.65 33.65
#> 2 TRUE W22-13 2013-05-27 2013-06-02 35.77 35.77
#> 3 TRUE W23-13 2013-06-03 2013-06-09 36.58 36.58
#> 4 TRUE W24-13 2013-06-10 2013-06-16 35.93 35.93
#> 5 TRUE W25-13 2013-06-17 2013-06-23 33.14 33.14
#> 6 TRUE W26-13 2013-06-24 2013-06-30 34.16 34.16
#> 8 TRUE MJUL-13 2013-07-01 2013-07-31 33.14 33.14
#> 9 TRUE MAUG-13 2013-08-01 2013-08-31 35.72 35.72
#> 10 TRUE MSEP-13 2013-09-01 2013-09-30 38.41 38.41
#> 11 TRUE MOCT-13 2013-10-01 2013-10-31 38.81 38.81
#> 12 TRUE MNOV-13 2013-11-01 2013-11-30 40.94 40.94
#> 14 TRUE Q4-13 2013-10-01 2013-12-31 40.53 40.53
#> 15 TRUE Q1-14 2014-01-01 2014-03-31 42.40 42.40
#> 16 TRUE Q2-14 2014-04-01 2014-06-30 33.39 33.39
#> 17 TRUE Q3-14 2014-07-01 2014-09-30 31.78 31.78
#> 18 TRUE Q4-14 2014-10-01 2014-12-31 38.25 38.25
#> 19 TRUE Q1-15 2015-01-01 2015-03-31 40.73 40.73
#> 20 TRUE Q2-15 2015-04-01 2015-06-30 32.64 32.64
#> 21 TRUE Q3-15 2015-07-01 2015-09-30 30.87 30.87
#> 22 TRUE Q4-15 2015-10-01 2015-12-31 37.22 37.22
#> 25 TRUE CAL-16 2016-01-01 2016-12-31 34.10 34.10The calculation without prior function, for comparison:
fwd_fut_npri <- msfc(tdate = as.Date("2013-05-13"), # trading date
include = powfutures130513$Include, # vector with TRUE/FALSE, include contract?
contract = powfutures130513$Contract, # vector with contract names
sdate = powfutures130513$Start, # vector with contract start dates
edate = powfutures130513$End, # vector with contract end dates
f = powfutures130513$Closing, # vector with contract closing prices
prior = 0 # no prior function
)
plot(fwd_fut_npri, legend = "", title = "MSFC excluding prior for power futures 2013-05-13")
The daily forward curve values can be found along with the prior
function and contracts used in the calculation with the show() method:
head(show(fwd_fut_wpri)[, 1:9], 20)
#> Date MSFC W21-13 W22-13 W23-13 W24-13 W25-13 W26-13 MJUL-13
#> 1 2013-05-13 29.89373 NA NA NA NA NA NA NA
#> 2 2013-05-14 30.40235 NA NA NA NA NA NA NA
#> 3 2013-05-15 30.88704 NA NA NA NA NA NA NA
#> 4 2013-05-16 31.30634 NA NA NA NA NA NA NA
#> 5 2013-05-17 30.66200 NA NA NA NA NA NA NA
#> 6 2013-05-18 30.98687 NA NA NA NA NA NA NA
#> 7 2013-05-19 32.33591 NA NA NA NA NA NA NA
#> 8 2013-05-20 32.74655 33.65 NA NA NA NA NA NA
#> 9 2013-05-21 33.19772 33.65 NA NA NA NA NA NA
#> 10 2013-05-22 33.63844 33.65 NA NA NA NA NA NA
#> 11 2013-05-23 34.02161 33.65 NA NA NA NA NA NA
#> 12 2013-05-24 33.34168 33.65 NA NA NA NA NA NA
#> 13 2013-05-25 33.62327 33.65 NA NA NA NA NA NA
#> 14 2013-05-26 34.91272 33.65 NA NA NA NA NA NA
#> 15 2013-05-27 35.24208 NA 35.77 NA NA NA NA NA
#> 16 2013-05-28 35.59669 NA 35.77 NA NA NA NA NA
#> 17 2013-05-29 35.92499 NA 35.77 NA NA NA NA NA
#> 18 2013-05-30 36.17633 NA 35.77 NA NA NA NA NA
#> 19 2013-05-31 35.34194 NA 35.77 NA NA NA NA NA
#> 20 2013-06-01 35.44437 NA 35.77 NA NA NA NA NAAn instance of MSFC is a rather rich object, and further details
regarding the calculation, spline coefficients, etc. can be found in the
slots:
slotNames(fwd_fut_wpri)
#> [1] "Name" "TradeDate" "BenchSheet" "Polynomials" "PriorFunc"
#> [6] "Results" "SplineCoef" "KnotPoints" "CalcDat"Futures trading strategies for price risk management, for commercial hedgers with long or short exposure. All models below aim to achieve a favorable unit price for the energy portfolio, while preventing it from breaching a pre defined cap (floor).
The functions
cppi()- Constant Proportion Portfolio Insurancedppi()- Dynamic Proportion Portfolio Insuranceobpi()- Option Based Portfolio Insuranceshpi()- Step Hedge Portfolio Insuranceslpi()- Stop Loss Portfolio Insurance
implement alternative approaches to achieve this goal. They return S4
objects of type CPPI, DPPI, OBPI, SHPI and SLPI respectively,
with methods plot(), summary() and show().
In our example, we will consider the CAL-06 contract in the synthetic
powcal data set, and start trading 500 days prior to the contract
expiry. For the OBPIstrategy presented below, the target price is
calculated as an expected cap (floor) given by the option
premium-adjusted strike price selected for the delta hedging scheme
within a standard Black-76 option pricing framework. The default strike
price is set at-the-money. The user may express a view regarding future
market development by deviating from this level.
cal06_obpi_b <- obpi(q = 30, # volume 30 MW (buyer)
tdate = dat06$Date, # vector with trading days until expiry
f = dat06$CAL06, # vector with futures price
k = dat06$CAL06[1], # default option strike price at-the-money
vol = 0.2, # annualized volatility, for the Black-76 delta hedging
r = 0, # default assumed risk free rate of interest
tdays = 250, # assumed trading days per year
daysleft = 500, # number of days to expiry
tcost = 0, # transaction cost
int = TRUE # integer restriction, smallest transacted unit = 1
)
plot(cal06_obpi_b, legend = "bottom", title = "OBPI strategy buyer CAL-06")
The summary() method:
summary(cal06_obpi_b)
#> $Description
#> [1] "Hedging strategy of type OBPI and length 500"
#>
#> $Volume
#> [1] 30
#>
#> $Target
#> [1] 29.83626
#>
#> $ChurnRate
#> [1] 4.333333
#>
#> $Stats
#> Market Trade Exposed Position Hedge Target Portfolio
#> First 26.82 17 13 17 0.5666667 29.83626 26.82000
#> Max 39.01 17 17 30 1.0000000 29.83626 29.29433
#> Min 25.60 -3 0 13 0.4333333 29.83626 26.46833
#> Last 37.81 0 0 30 1.0000000 29.83626 29.29433The show()method provide details regarding daily values for market
price, transactions, exposed volume, futures contract position, the
target price and the calculated portfolio price:
head(show(cal06_obpi_b))
#> Date Market Trade Exposed Position Hedge Target Portfolio
#> 1 2004-01-02 26.82 17 13 17 0.5666667 29.83626 26.82000
#> 2 2004-01-05 26.63 -1 14 16 0.5333333 29.83626 26.73767
#> 3 2004-01-07 26.31 0 14 16 0.5333333 29.83626 26.58833
#> 4 2004-01-08 26.31 0 14 16 0.5333333 29.83626 26.58833
#> 5 2004-01-09 26.54 0 14 16 0.5333333 29.83626 26.69567
#> 6 2004-01-12 26.32 0 14 16 0.5333333 29.83626 26.59300Further details for a specific instance of a trading strategy can be found in the slots, see for example:
slotNames(cal06_obpi_b)
#> [1] "StrikePrice" "AnnVol" "InterestRate" "TradingDays" "Name"
#> [6] "Volume" "TargetPrice" "TransCost" "TradeisInt" "Results"The CAL-06 OBPI strategy from a sellers point of view:
cal06_obpi_s <- obpi(q = - 30, # volume -30 MW (seller)
tdate = dat06$Date, # vector with trading days until expiry
f = dat06$CAL06, # vector with futures price
k = dat06$CAL06[1], # default option strike price at-the-money
vol = 0.2, # annualized volatility, for the Black-76 delta hedging
r = 0, # default assumed risk free rate of interest
tdays = 250, # assumed trading days per year
daysleft = 500, # number of days to expiry
tcost = 0, # transaction cost
int = TRUE # integer restriction, smallest transacted unit = 1
)
plot(cal06_obpi_s, legend = "bottom", title = "OBPI strategy seller CAL-06")