The following two seminars will be held by former FiRM students as part of the Quantitative Risk Management course. For second-year students, participation is mandatory. First-year students are welcome to participate, if interested.
May 20, 6 pm, D6013
Maurizio Pierigè, Senior Partner at Prometeia (online)
Giacomo Romagnoli, Consultant at Prometeia (in person)
Hedging Strategy against Geopolitical Risk
Abstract. The primary objective of this study is to formulate a hedging strategy designed to mitigate a specific subset of market risk, namely Geopolitical Risk. Additionally, an extensive analysis of European financial markets has been conducted to elucidate the influence of geopolitical news on major European country indices. This involved gathering financial data, particularly closing prices spanning from November 2001 to November 2023. To evaluate Geopolitical Volatility1 (Geovol), as shown by Robert F. Engle, it was imperative to minimize cross-correlation and autocorrelation using appropriate models. Initially, an ARX (1) model was employed to estimate the mean and eliminate cross-correlation and autocorrelation, where X represents the daily average of returns. Subsequently, the most suitable GARCH (1,1) model was chosen, accounting for the leverage effect and incorporating t-distributed innovations to estimate conditional volatility. This entire process was systematically repeated for each of the selected 11 European stock indices. Standardized residuals were then utilized to calculate geopolitical volatility from 2001 to 202, shedding light on the impact of significant political events such as the Russia-Ukraine War, the
Pandemic, and the Israel War. Another noteworthy outcome was the determination of parameters measuring the influence of news on individual indices. Consequently, Value at Risk was computed, serving as a valuable tool for hedging purposes, contingent upon the verification that innovations from the Geovol model followed a Gaussian distribution.
May 28, 6 pm, D6/013
Filippo Baroncelli, Power and Emissions Trader at ENI (in person)
Energy Commodities Trading: Managing Volatility and Climate Risks
Abstract. This seminar explores the landscape of energy commodities trading, with a focus on the challenges posed by market volatility and climate risk. As energy markets become increasingly complex and interconnected, traders and risk managers must navigate price fluctuations driven by geopolitical tensions, supply-demand imbalances, and the accelerating energy transition. The seminar will examine trading strategies across key European commodities such as natural gas, electricity, and emissions, with the use of financial instruments for both speculative and hedging purposes. Through the analysis of case studies and real market data, we will also illustrate how extreme weather events - such as heatwaves, cold snaps, and droughts - have significantly influenced market behavior and driven shifts in trading strategies, while also contributing to heightened price volatility.