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1 Speedwell Weather System An Overview Vs 6.6 The Open Weather Derivative and Risk Management System.

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Presentation on theme: "1 Speedwell Weather System An Overview Vs 6.6 The Open Weather Derivative and Risk Management System."— Presentation transcript:

1 1 Speedwell Weather System An Overview Vs 6.6 The Open Weather Derivative and Risk Management System

2 2 Speedwell Weather System SWS is an open system for pricing weather derivatives, managing risk, managing the back office process and assessing client weather exposure. The product of over eight years of continuous development SWS incorporates full and seamless integration of weather data from multiple providers. SWS covers the need of both secondary market traders and exotic insurance type transactions. SWS is available as an internally installed application or can be hosted by us and delivered over the web. This presentation describes some of its features

3 3 Contents SWS Features by function Pricing Features Secondary Market Support Portfolio VaR and Credit Risk Reporting Back Office Integration Weather Dependency Analysis Weather Data Management General Architecture SWD Contact Details

4 4 SWS 6.6 System Features by Function Revenue / Volume or price risk analysis Revenue Vs single Weather Index analysis Revenue Vs multiple indices optimisation analysis Post-hedge revenue analysis Client Risk Report hard-copy Option and Portfolio effectiveness analysis Weather Exposure Analysis Transaction recording Trader permissioning features Marginal-impact of next transaction analysis Indices regression analysis Historical portfolio analysis Portfolio greeks report Simulation based profit at risk analysis VaR measure Back office reporting Risk Reports, Daily VaR reports Impact of each option shown on Markowitz chart Credit risk reports (any period) P&L reports (global and by portfolio) P&L reports (mark to market and mark to model) Unlimited number of portfolios Ability to define and save index models, pricing models and portfolio risk models. This allows portfolio value sensitivity to pricing model to be assessed VaR can be assessed exclusive or inclusive of premium Stochastic dominance methodology applied to portfolios Chronological VaR calculations Risk Management / Middle Office Flexible Market-View grid combining market prices, positions and value analysis Optional SWS YellowJacket R interface component Optional SWS CME© interface component showing closing prices Record OTC market prices View historic prices View relationship between forward and swap Use the Swap curve tool for further swap level analysis Market Information Setting up of clients Monitoring trade life cycle Optional module for the automatic creation of invoices and contracts Automatic calculation of settlement value Transaction list Settlement list Post settlement adjustment list Trade settlement life cycle management Company contacts Client contacts Pricing of vanillas, baskets, spreads and exotics Real Time centralised calculation server Automatic generation of period means and volatilities Multiple detrending methods including LOWESS Option to detrend series before index building Multiple distribution analysis tools (normal, kernel etc) Full Support and automatic integration of deterministic or ensemble forecasts using user-configurable forecast models Support for Hourly Indices and Strip Pricing Support for in-term contracts with automatic calculation of partial index Temperature simulation using seasonal residue distribution Supports both capital market and actuarial pricing Back-out implied vols/means from market prices Pricing supports multiple distribution types Automatic generation of hard-copy pricing reports Day of week or specific day exclusion index builder Support for exotic index creation with user-entered formula Pricing matrix (e.g. show call prices given vols, strikes) Swap Forward Curve Futures Position Analysis feature Valuation of in-period contracts Tool for analysing the marginal impact of forecasts on pricing and portfolio risk In-period cone analysis Extraction of volatility smile Extraction of volatility curve Simple extraction of 1 week/1 month term index means / vols (or any other period) Generic FTP data importing tool for multiple data vendors Support for Speedwell Recalibrated Datasets Support for any Data Provider required Automatic implementation of WRMA data filling Data quality control tool Store 15 day, monthly and seasonal ensemble forecasts for viewing, pricing and risk management SWS DBAccess tool for supporting the SWS database Configurable on missing data actions Automated data download from other suppliers on request Data recorded separately as synoptic, climate and reconstructed Full audit trail of data source files and changed data points Alerts for post settlement adjustment Enhanced support for CME weather Futures and Option Contracts System security tool for easy security configuration SWS Data Cache Centre for the storage of pricing data to facilitate quick and efficient calculations Data Back Office Pricing

5 5 Pricing Features

6 6 Pricing Main Features Support for all types of CME, OTC vanilla and exotic derivatives. User can design own pay off function Multi model pricer: price with five user-specified models with a single button click Hourly & Daily compound indices on any weather elements Support for any combination of derivatives as a strip (multi year, multi month, flexi, etc…) Many statistical methods to detrend the data, fit distributions, perform Monte Carlo simulations Full back and middle office module Full weather data and forecast data management on own database

7 7 Speedwell Weather System Pricing Features A range of index types, weather references and option periods are available. Single, Compound and Hourly Indices can be calculated, allowing the additional use of Spreads and Baskets Large range of standard index and option types. Facility to create your own option type Specify Models at the Index, Option and Portfolio level to specifically tailor index, option and Portfolio pricing methods Option to exclude all days of a week AND specific days (e.g. bank holidays) Explicit support for uncapped structures Partial Indexing can be used to price structures that need to be priced within the index period View the historical payoff and final index values for each historical option period for all the available years of data here

8 8 Speedwell Weather System Pricing Features Detrending SWS allows the trader to easily see the impact of different periods on burns and the impact of different detrending methods on pricing

9 9 Speedwell Weather System Pricing FeaturesMulti Model Pricer Show prices from five user-defined pricing and index models simultaneously. With or without forecasts

10 10 Ensemble Forecasts (unlimited number of members) and deterministic forecasts from multiple suppliers are fully integrated into pricing and risk management in SWS. Prices and portfolio valuations can be seen with and without forecasts. In the case of ensemble forecasts, the average, median, worst or best case can be selected. A structure can also be priced SEPARATELY using EVERY single ensemble to correctly capture outliers (important with convex structures such as options, critical day structures, vanillas in the shoulder months) Shown above are two tools that are used to examine the marginal impact of forecasts on pricing an individual option or portfolio. All forecasts are persisted allowing for retrospective portfolio valuations and allowing for independent skill scoring. It is also easy to render forecasts graphically Speedwell Weather System Forecast Integration Apply these models to see impact on pricing and portfolios Create different forecast models

11 11 Speedwell Weather System Hourly Index Pricing Hourly index parameters are easy to configure: the required hours of the deal, an index on the hourly data points and the possibility to transform to a daily index. Hourly Intervals can even be used to form indices on irregular intervals such as half hourly or quarter hourly periods Hourly Indices can be created on both single and compound indices. This allows for support of complex structures including the Schiphol critical hourly based structure

12 12 Speedwell Weather System Strip Creation and Pricing The Weather Derivatives Wizard enables quick and easy formation of strips and includes specification of overall negative and positive caps The pricing of the strip and the component options are shown with separate burn analyses here Strip pricing analysis also compares the historical and simulated values graphically and gives all the relevant pricing information in this view

13 13 Speedwell Weather System Forecast Visualisation in SWS View Multi-Member Ensemble Forecasts as path plots View Multi-Member Ensemble Forecasts as box-plots with average and N-years climatology overlaid Compare successive forecasts sequentially. This can also be done for forecasts issued on a given day by multiple suppliers Seasonal and monthly ensemble forecasts are also supported. Shown here are the average and 10 year climatology.

14 14 Probability Distribution Functions of ensemble forecasts can now be viewed within SWS. This allows the nature of the distribution and the evolution of uncertainty over time to be visualised graphically. The width of the curves exhibited are good indicators of the likelihood of the forecast outcomes – the forecast confidence for each day can be inferred from this. These curves can also be helpful for identifying when ensemble forecasts predict two or more likely outcomes i.e. a bi-modal distribution which information is lost in a deterministic forecast Speedwell Weather System Forecast Viewing: Probability Distribution Graphs

15 15 Secondary Market Support

16 16 Secondary Market Trading Main features CME Closing prices are delivered to the desktop and saved to the database from where they can be used for marking to market. Ability to add other OTC prices delivered by non electronic method Calculation of inferred prices, Greeks, marginal VaR, required futures hedging, position in given index. All in real time using a centralised calculation server View historic bid and ask prices numerically and graphically View the relationship between a forward and a swap Swap curve generation that allows for further analysis of swap levels Pricing matrix to price options given underlying swap Extraction of volatility smile

17 17 SWS Futures Live Screen User chooses fields and structures to be viewed. No limit to the number displayed. Multiple views can be created Book trades: highlight row, click this button Press this button for Index Position analysis Select futures, press this to see instant correlation matrix The best available market values are displayed from the three live sources (see next slide) Press this to access the spread / basket calculator

18 18 SWS Futures Live Screen – Live Feeds Live prices from the markets Current trading positions Historical statistics Partial Index and forecast info User specifies structures per row. No limit to the number displayed User chooses fields to be viewed YJS Market Values OTC Market Values CME Market Values

19 19 SWS Futures Models Comparison View prices for all CME contracts using multiple pricing models simultaneously. Choose up to four models.

20 20 Example SWS Options Live Screen User chooses fields to be viewed including these User chooses structures per row. No limit to the number displayed. Live prices from the OTC markets Option prices updated in real time using live swap rates. Or highlight row and click to bring up Black 76 calculator where vols and swap levels can be over- ridden to calculate price or greeks backed out given a price. User can also enter prices manually Book trades: click row, click this button Instantly analyse spread or basket trade: select options, press this button

21 21 Speedwell Weather System Monitoring the Secondary Market – Static Data Screens Market Swap levels can be recorded and tracked. This allows historical charting and the basis between fair value and the swap to be monitored and graphed. Transaction and bid/ask prices of other options can also be recorded Latest swap levels Edit or Enter new swap levels See swap levels evolution vs. user index forward NB: values shown for illustrative purposes only Or graph any of these variables:

22 22 Speedwell Weather System Pricing Options Options can be priced individually or in a flexible matrix in which the underlying swap rate can be updated

23 23 Portfolio VaR & Credit Risk Reporting

24 24 Portfolio Main Features Generate portfolio reports showing: VaR (Expiry and/or Daily VaR) P&L This can be calculated on a single portfolio and / or Enterprise- Position basis View credit risk By Counterparty By Trader By Personalized combination view Fully customisable Report generation for VaR and P&L (exportable to MS Word ® and MS Excel ®) Middle Office can override traders pricing parameters

25 25 Speedwell Weather System Middle Office Portfolio Models Index Models can be specified to tailor aspects of pricing related to Index formation Option Pricing Models can be configured to set up specifications for pricing a structure Portfolio Risk Models can be specified along with different combinations of Index and Option models for each one Middle Office can override traders pricing parameters to give greater objectivity to portfolio valuations when marking to model

26 26 Speedwell Weather System Middle Office VaR & Credit Risk Reports Automatic Credit Reports can be generated at the press of a button Reports can be run for any counterparty using any trade or settlement dates The ISDA standard 10 years WRMA methodology is supported

27 27 Speedwell Weather System Middle Office - Portfolios Portfolio Risk Analysis is comprehensively encompassed by SWS Risk Analysis tool. Reports for Options, Transactions, Greeks and Portfolios are all produced for analysis, along with a Markowitz chart showing Portfolio Options Impact Historical payoffs are generated with the capability of examining effects of changes in options volumes and premiums - VaR and Credit risk can be calculated on a portfolio basis or on an enterprise-wide basis

28 28 Speedwell Weather System Middle Office – Viewing the greeks See the greeks when pricing See the individual transaction greeks in the P&L transaction report (also shown in the portfolio summary). All reports can be exported to MS Excel ® SWS supports functionality that allows both a capital markets and an actuarial approach to be taken to weather derivative pricing See greeks summarised by index Total portfolio Rho and Theta Set pricing models to change the way each option is priced independently

29 29 Speedwell Weather System Daily VaR Reporting View the Daily Value at Risk levels and expected P & L Difference here View the report of the portfolio by derivative along with the expected profit/loss

30 30 Speedwell Weather System Middle Office – The Portfolio Constraint Builder SWS provides the facility to view impact analysis on a portfolio under specifiable constraints Specify an option and its payoff details to view the effects of trading it on the portfolio View the portfolio impact analysis using either historical or simulated values. A summary of the stats is given along with a graph of the distribution of Re- centred Return. Alter the portfolio optimisation constraints and then run the analysis again to view the impact of changing the constraints

31 31 Back Office Integration

32 32 Back Office Main Features Extensive transaction Reporting (all and outstanding transactions) Settlement processing and reporting Trade settlement life cycle management Consolidated and fully customisable reporting tool

33 33 Speedwell Weather System Back Office Transaction Life Cycle Manager This tool allows the lifecycle of settling a trade to be followed Double click on a trade to open the life cycle manager and record details for each step underneath Fill out this form to record details of each Payment Easy adding of new stages eg. Confirm with Trade Blotter

34 34 Speedwell Weather System Back Office Settlement Report and Settlement Calculation Automatic calculation of post-settlement adjustment if required View trades by these filters Settlement data are persisted for each transaction. Press this button to view them here Calculate the settlement values here Easily filter trades requiring post settlement adjustment Any changed data points highlighted in red All reports can be exported to MS Excel ®

35 35 Back Office Invoice and Contracts – Generating Invoices Invoices can be made for premium, broker fees, settlement and post settlement adjustments. For each counterparty an invoice of each currency will be generated and a full audit trail is available from the list of invoices

36 36 Back Office Invoice and Contracts – Creating Contracts Contracts can be generated for any company and any transaction. Multiple contracts can be generated for multiple transactions simultaneously. A full audit trail is available from the List of contracts

37 37 Back Office Invoice and Contracts – List of Invoices All created invoices are listed and can be interrogated via the use of extensive filtering Invoices can be marked as paid. The transaction life cycle is then automatically updated throughout the SWS Back Office

38 38 Back Office Invoice and Contracts – List of Contracts Full support for automatic contract generation including full audit trail of all created contracts All contracts can be opened from this screen once created

39 39 Weather Dependency Analysis

40 40 Speedwell Weather System Main Features Analyse data dependency between revenues and weather indices Find out the most correlated basket index to the data under constraint Estimates the impact of hedging revenues with one or several derivatives bundled in a portfolio

41 41 Speedwell Weather System Weather Dependency Analysis Weather dependency can be easily viewed on a weekly, monthly or annual basis (subject to data constraints). An index can be generated. Indices can be created to observe weather effects. Automatic generation of MS Word ® and PowerPoint ® presentations can be created from this analysis for delivery to potential clients SWS has two tools for correlating weather dependency to different sites / indices and for automatically creating WD structures to reduce weather dependency. This can be done at an option level and at a portfolio level. Above is shown the Portfolio protection tool, where the protection effect of all available portfolios can be analysed against client revenue streams

42 42 Weather Data Management

43 43 Weather Data Main Features SWS is open to multiple data providers Fully automated download to SWS database from numerous leading global data and forecast providers respecting different data types Easy import of deterministic and ensemble forecasts Full audit trail of weather data changes Full quality control testing and reporting functions for independent data integrity analysis

44 44 Speedwell Weather System Weather Data Importation File directory structure is listed here Data can be imported by setting the filter with the button at the top of the page and then pressing the Import Grid to Database button Simply paste the data (either using the keyboard shortcut or the Paste Values button) of dates and temperature data into the grid, click the Set Station button and click the Import Grid to DB button. Various default Import options can be set via the Options button Standard CSV ImporterSimple Copy and Paste from Excel SWS is an open system. Weather data from any source can easily be imported into SWS own database. A full audit trail is provided.

45 45 1. Connect to site and choose files 3. Confirm download to SWS Database or select the option for SWS to import the data automatically 5. Changed data points can be reported Speedwell Weather System Automatic Weather Data download SWS is open to any data provider. Full automatic integration has been implemented with a number of providers. The process shown below can be fully automated. 2. All the files in the list can be downloaded by using the Download All option. Data can also be downloaded from multiple providers 4. SWS automatically updates data and creates new sites if necessary. Time of update recorded

46 46 Speedwell Weather System Weather Data Auditing SWS offers numerous data auditing options including the Data Auditor itself, Weather Data Reports, Dataset Comparisons, Data Viewer, Data Update Displayer and NOAA List Displayer. The Data Auditor can be used to examine the validity of data pertaining to individual sites. Erroneous or potentially erroneous data points are reported for immediate investigation. Missing data points and daily information are also provided QC Reports can be generated to perform tests on weather data and flag any data that fail (possible actions are circled in red). The flagged data are grouped together in a report and saved to the database. A QC report can be designed to match exactly what is wanted by modifying the configurable settings to use. Reports can be configured to run automatically at a specific time or straight away

47 47 General Architecture

48 48 Automatic download of weather data and forecasts (ensemble and deterministic) Trader 1..Trader N Sales / Structuring Administrator Middle Office Back Office Daily and expiry VaR Reports P & L Reports Ticket Generation WXML Confirms P & L Reports VaR Reports, credit risk reports Speedwell Weather System- Multi User Environment Head Trader SWS Central Server and Database Pricing Risk management Data quality control P & L Ticket booking Pricing Risk management Data quality control P & L Ticket booking Pricing P & L Risk Management all books and consolidated Weather dependency analysis, credit risk reports Data quality control Ticket Booking Pricing Client revenues analysis Add client data Mark-to-market Risk management VaR Credit risk reports P & L View trades / confirm View reports Calculate settlement Post settlement adjustment alert Set user permissions Modify tickets Data quality control Forecasts Client data / gas / power data Permissioning Weather data updates Live Markets Real-time Live Prices YellowJacket OTC Market interface CME Market Interface OTC Prices Multiple Data Providers

49 49 Speedwell Weather System Summary SWS Offers: Powerful secondary market functions including pricing grid for displaying unlimited number of secondary market prices with real-time price feeds. Full integration with multiple weather data and forecast providers Pricing methods for standard, exotic and strip derivatives Support of daily & hourly data with auditing tools Support for standard and advanced weather specific statistical analysis: e.g. distribution fitting, detrending method testing Full middle and back office management facilities. Middle office can independently verify valuations with separate models. Full permissioning model. Full audit trailing on all data...and a dedicated support team developing software that keeps you ahead of the market

50 50 Regarding world-wide weather data and forecast matters please see or contact: Phil David Whitehead Telephone: UK office:+44 (0) US office:+1 (0) Regarding software, weather risk placement and consultancy services please see or contact: Stephen Doherty Dr Michael Moreno David Whitehead Telephone: UK office:+44 (0) US office:+1 (0) Address UK: Mardall House, Vaughan Rd, Harpenden, Herts, AL5 4HU Address USA:101 N Columbus Street, Second Floor, Alexandria VA USA Speedwell Weather Derivatives Limited is authorised and regulated by the Financial Services Authority. Registered Offices Mardall House, 9-11 Vaughan Road, Harpenden, Herts AL5 4HU, UK. Company No SWD Contacts

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