We have worked on multiple financial oil implementations covering more than 70 financial products – OTC, exchange traded, and exchange cleared. They included a range of crude and refined product contracts, as well as a large number of fuel oil and gas oil cracks and diffs. In the physical oil space, we have implemented gas oil and fuel oil physical contracts, as well as modeled storage for those.
Among the oil-related work we have done, some of the more interesting successfully implemented things were:
- implementing more than 50 ICE traded or ICE / CME cleared products – Brent, WTI, and Gasoil futures, the monthly average swaps based on futures prices, and a range of OTC traded but exchange cleared swaps, covering various cracks, diffs, and outrights on Diesel, Gasoil, low- and high-sulfur fuel oil, etc. on different incoterms, and different delivery locations
- building a curve tree enabling reporting Greeks on outrights as well as on the most liquid products, depending on trader’s and risk manager’s view
- capturing time series analysis using log-linear volatility calculations (delivering a volatility in %) as well as dollar volatility for the diffs and cracks
- optimizing the Value at Risk correlation matrix, by analyzing the number of risk factors that sensibly contribute to the VaR, and whether volatility should be calculated on outrights, diffs and cracks, or on the most liquid products only (eg WTI, Brent, and Gasoil futures) and then used across the related products
- oil storage valuation
For the latter, as bulk commodities (coal, oil) and flow commodities (gas) have a different approach to valuation, we had to account for the differences in a functionality which was meant for the gas model (valuing time spread between injection and withdrawal times). We designed a model where oil was valued at current market prices (still allowing to move to forward market prices should the trader wish to move his position (ie keep oil in storage up to a certain point) to the future and sell it there. Our customers’ software now handles this valuation without complex workarounds (after a recent upgrade, which we also supported).