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 As energy markets liberalise, procurement demands a greater focus on commodity management. The secret to buying commodities is matching your organisations risk profile and objectives with ongoing measurement and control of that relationship.
The old adage of “if you can’t measure it, you can’t manage it” has never had a more appropriate use. While most consumers track movements in market prices and the resulting effect on their portfolio, very few have the resources to manage the third dimension, the value of the risk resulting from un-hedged energy volumes – and like the market this changes daily. M&C Energy Group combines their industry knowledge and market expertise with a process called Value at Risk (VaR). Traced back to the 1920s, it wasn’t until the processing power of computers improved sufficiently in the 1970s that this method of valuing risk was readily used. Today VaR is extensively employed by M&C Energy Group , not to mention countless financial institutions, energy companies, traders and banks. While there are many ways of calculating VaR, M&C Energy Group combines Monte Carlo simulation with mean reverting Brownian Motion running many thousands of iterations on each customers position to show an additional metric essential for decision making. Because all positions are governed by a risk policy and controlled by a risk limit, emotive decision making is removed. Hedging decisions can then be carried out within these parameters using commercial flexibility to steer a path through what are often the conflicting objectives of both budget certainty and market performance.
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