New data sources and increasing volumes
The Importance of Real-Time Forward Curves A ComTechAdvisory Whitepaper seen the emergence of“ virtual assets,” financial products that allow companies to gain some of the advantages of physical asset ownership without the burdens of owning hard assets, including regulatory oversight, debt service and the inherent operational risks. One such example is the ability to arbitrage between oil forward contracts and storage value using CME instruments that represent physical oil storage.
Renewable energy mandates are also driving significant changes in the power and gas markets as increasing reliance on unpredictable sources of renewable generation( such as wind and solar) has created both opportunity and challenges. As operational variability creates increasing price volatility, energy traders are finding new opportunities in the intraday, real-time, energy markets. However, given the highly granular pricing and operational data generated by these markets, market participants have had to develop new programmatic trading approaches and risk capabilities that can quickly identify opportunities, and limit down-side risks, within vast amounts of high-velocity data.
New data sources and increasing volumes
Regulations mandating increased transparency, the growth of market-focused social media sources, and a move to automation, including IOT sensors, have resulted in massive increases in the amount and diversity of data available in today’ s commodity markets. Traders are, in turn, called upon to make faster decisions, despite the need to consider more data points than ever before in that decision-making process. As such, commodity trading companies are, by necessity, seeking out more sophisticated technologies that can aggregate, analyze and present real-time visualizations and rich analytic tools on their traders’ desktops.
Risk managers, facing similar challenges in terms of data velocity and volume, require similar tools but, equally important, also require a consistent approach to position management and valuations throughout the trading organization. Often, different valuation methods and tools will be in use across front, mid and back offices that can result in discrepancies in positions and valuations that result in improperly valued positions and inaccurate hedges – increasing risks and requiring constant reconciliation and explanation. Despite these challenges, spreadsheets remain more or less ubiquitous in the industry, being used as ad hoc and sometimes even primary tools for a wide range of data aggregation, position management and risk activities. Despite the usefulness and familiarity trading staff may have with Excel, companies are recognizing its use poses any number of risks-- including potential abuse, errors in data entry, capture or calculation, and lack of auditability – and are seeking alternatives to ensure adequate control, auditability and consistency of methodologies.
While trading organizations are forced to consume a plethora of new data sources as noted above, the practice of risk management is still defined by prices – historical prices, spot prices and forward curves; and increasingly, this information is needed closer to real-time and from a greater number of sources to support a wide variety
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