The impact of correlations on VaR
Energy companies are in the business of turning energy from one form into another. For example, a gas-fired power station turns chemical potential energy stored in the natural gas into electrical energy. A natural gas storage facility allows energy (held in the form of natural gas) to be stored at one point in time and recovered at a later time. A gas pipeline moves energy from one location to another. The result is that the financial risks faced by an energy company involve a large portfolio of spreads â differences between energy prices. These prices will vary stochastically through time, and will typically be related to each other in some way. This project will involve studying those relationships and how they affect specific measures of the risk faced by the company from possible future movements in those prices.