SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
natou12
Topic Author
Posts: 27
Joined: July 1st, 2007, 12:25 am

please can you give some tipps

August 9th, 2007, 11:42 pm

this is my problem You manage a power plant that is out of operation for the next 3 months on routine maintenance. However, by investing £25,000 you could accelerate the maintenance programme to make the plant available for a return to service 1 week early – although there would be no obligation on you to run it during this week. The plant has a maximum output of 500 MW and if you do decide to start it a week early you must operate it at this level for the whole week to support commissioning tests. The cost of running the plant is £20 per MWh generated, and the plant’s output is sold to the power market. Forward contracts for the delivery of baseload power over the week concerned are currently trading at 19 £/MWh with an annualised volatility of 30% - estimated from the standard deviation of historic price returns, and shown to be independent of time to maturity. You need to establish whether it is economic to bring the plant back early, the risks involved in following such a strategy and how to minimise these risks. You should consider two scenarios. The first is that market liquidity continues to be good and transaction costs are negligible. The second is that liquidity rapidly deteriorates to the level where trades typically carry a transaction cost of 0.15 £/MWh. my report should outline the models and analyses you have used and present key results. Where possible, to give management confidence in your recommendations, results should be verified by two different methods. please can you give me some tipps to start thanks
 
User avatar
carbon
Posts: 10
Joined: April 3rd, 2002, 11:24 pm

please can you give some tipps

August 10th, 2007, 3:04 am

Hi Natou,If you don't salivate at the chance of tackling a problem like this than perhaps you're in the wrong course. Also, a question like this might better be posted in the Students forum.Whenever you're confronted with a problem which stumps you, you still have got to give it a good crack before asking for help. Very, very rarely do you ever want to ask somebody for help on a problem without first being able to say "Here's what I tried..." or "Here's what I was thinking a possible approach would be..." So in facing this problem, what approaches have you considered?Once you get your ideas out, its much more likely somebody on this board will be able to guide you in the right direction. Unfortunately I'm not the person to help you with the execution on this one but it reads like a very fun problem.
 
User avatar
ZmeiGorynych
Posts: 876
Joined: July 10th, 2005, 11:46 am

please can you give some tipps

August 10th, 2007, 5:28 am

 
User avatar
wrn
Posts: 15
Joined: February 23rd, 2007, 12:05 am

please can you give some tipps

August 12th, 2007, 2:26 pm

sounds like you are buying a call option. if the vol is 30%, you have to calculate whether it's worth paying 25k for the right to open the plant 1 week early
Last edited by wrn on August 11th, 2007, 10:00 pm, edited 1 time in total.
 
User avatar
natou12
Topic Author
Posts: 27
Joined: July 1st, 2007, 12:25 am

please can you give some tipps

August 12th, 2007, 8:39 pm

Last edited by natou12 on August 11th, 2007, 10:00 pm, edited 1 time in total.
 
User avatar
natou12
Topic Author
Posts: 27
Joined: July 1st, 2007, 12:25 am

please can you give some tipps

August 12th, 2007, 8:41 pm

man i was thinking use the black scholes merton model , but i am not sure please can you help me . thanx
Last edited by natou12 on August 11th, 2007, 10:00 pm, edited 1 time in total.
 
User avatar
bogracer
Posts: 94
Joined: February 7th, 2005, 5:35 pm

please can you give some tipps

August 13th, 2007, 6:01 am

Don't forget to hedge your risk of your transformer catching fire.
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On