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Speedwell Weather System

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Presentation on theme: "Speedwell Weather System"— Presentation transcript:

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

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 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 SWS 6.6 System Features by Function
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) Pricing 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 Back Office 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 Risk Management / Middle Office 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 Market Information Flexible “Market-View” grid combining market prices, positions and value analysis Optional SWS YellowJacketR 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 Weather Exposure Analysis 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

5 Pricing Features

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 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 Specify Models at the Index, Option and Portfolio level to specifically tailor index, option and Portfolio pricing methods Large range of standard index and option types. Facility to create your own option type 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 Option to exclude all days of a week AND specific days (e.g. bank holidays) Explicit support for uncapped structures

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

10 Speedwell Weather System
Forecast Integration Create different forecast models Apply these models to see impact on pricing and portfolios 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

11 Speedwell Weather System Hourly Index Pricing
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 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

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 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 Speedwell Weather System
Forecast Viewing: Probability Distribution Graphs 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

15 Secondary Market Support

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

18 SWS Futures Live Screen – Live Feeds
YJS Market Values OTC Market Values CME Market Values User chooses fields to be viewed 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

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

20 Example SWS Options Live Screen
Instantly analyse spread or basket trade: select options, press this button Book trades: click row, click this button User can also enter prices manually 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 chooses fields to be viewed including these

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 Edit or Enter new swap levels See swap levels evolution vs. user index forward NB: values shown for illustrative purposes only Latest swap levels Or graph any of these variables:

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 Portfolio VaR & Credit Risk Reporting

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

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

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 Speedwell Weather System
Middle Office – Viewing the “greeks” See the greeks when pricing SWS supports functionality that allows both a capital markets and an actuarial approach to be taken to weather derivative pricing Set pricing models to change the way each option is priced independently 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 ® Total portfolio Rho and Theta See greeks summarised by index

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 Speedwell Weather System Middle Office – The Portfolio Constraint Builder
SWS provides the facility to view impact analysis on a portfolio under specifiable constraints 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 Specify an option and its payoff details to view the effects of trading it on the portfolio

31 Back Office Integration

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

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

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

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 Weather Dependency Analysis

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 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 Weather Data Management

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 Speedwell Weather System Weather Data Importation
SWS is an open system. Weather data from any source can easily be imported into SWS own database. A full audit trail is provided. Standard CSV Importer Simple Copy and Paste from Excel 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

45 Automatic Weather Data download
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. 3. Confirm download to SWS Database or select the option for SWS to import the data automatically 1. Connect to site and choose files 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 5. Changed data points can be reported

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 General Architecture

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

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 SWD Contacts Regarding software, weather risk placement and consultancy services please see or contact: Stephen Doherty Dr Michael Moreno David Whitehead (U.S) Telephone: UK office: (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 Regarding world-wide weather data and forecast matters please see or contact: Phil Hayes David Whitehead (U.S) Telephone: UK office: (0) US office: +1 (0) 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 50

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