Despite being a multitrillion-dollar global industry, energy markets have yet to adopt industry-standard, widely accepted methods for XVA pricing, model analytics and risk management. As the energy sector has recently experienced extreme fluctuations in price and other dynamics due, in part, to Covid-19 pandemic-related and geopolitical effects, in this paper we take a look at some of the challenges energy traders face when seeking to apply XVAs to their derivatives transactions.
Download a copy of this paper for cutting-edge insight into key factors, including:
- Why applying XVAs in the energy markets is significantly different than traditional asset classes.
- The nuances of energy markets, including client credit profiles and credit data sparsity.
- Unique factors, such as physical delivery, weather, seasonality and storage.
- How volatility and frequent boom-and-bust cycles can mean outsized instability of XVAs.
- The impact of curve seasonality.
- How the transition to renewable energy increases data complexity for XVAs.
- Cloud computing as a key differentiator.