Again I have a question about the weather and the energy market. But luckily I should be done with my paper soon:1) What is the easiest way of combining weather and power derivatives in one portfolio? Or do I have to consider them seperately? 2) And what considerations are essential in managing their risks? Is it enough to simply look at their Greeks?I know that the questions are quite vague, but any ideas would be very helpful!Thanks in advance

Does anyone know anything about this topic?Is my thinking maybe too complicated and combination of the derivative types works just like any portfolio of different assets?I really need some help here please becaue my academic advisor is not providing me with much help here.Thanks in advance

If you could elaborate bit more on your question I might be able to help. In general power prices are largely a function of demand and fuel prices. Demand is driven by weather, but the relationship is not linear. Hot weather causes high demand and cold weather does as well. Often weather is expressed in heating and cooling degrees, the amoun of degrees above or below 60. The relationship between price and power demand is also non linear extreme demand can cause large spikes in power prices. I would think at a minimum these factors must be taken into consideration when modeling a portfolio of power and weather derivatives.The book Managing Energy and Power Risk Management by Eydeland and Wolyniec is a great book for anyone interested in these topics.

vienneseblues,I think they should all be managed in the one portfolio. Building on what Eccdogg said, assume you have a portfolio of generation, retail load and derivatives, the major drivers of the risk are power prices and weather. Given this, they should all be placed in the portfolio together. When you change your weather and power prices assumptions or forecast, the plant and load should be remodelled and evaluated. If you are trying to hedge your weather risk, the effectiveness of any weather derivatives will be the movement of the portfolio P&L based on the change of your weather assumptions.Terror