Two main themes have arisen consistently in the previous chapters. The first is that energy markets are affected on short time-scales by transient variations in supply and demand and on longer time scales by macroeconomic drivers, technological innovations, and regulatory developments. The second is that many risks that commonly arise in energy markets are only partially hedgable, in some cases being altogether uncommoditized. A variety of methods were introduced in the previous chapters that provided at least partial solutions to valuation and hedging when liquidity is limited or in which the risks of a structure differ substantially from those embodied in common tradables.

In this part we begin with a discussion of risk management and control for enterprises with activities spanning numerous regional energy-trading desks, including institutions with activities across multiple asset classes. The standard risk metrics, such as value-at-risk (VaR), inevitably play a role in risk management and capital requirements. However, a topic of particular relevance to energy trading is the characterization of risks that are outside the “VaR footprint” due to either limited liquidity and price transparency in high-dimensional portfolios or uncommoditized risks such as those arising from variable notional swaps. The methods that we used to analyze risk at the level of individual transactions serve well as starting points for the development of useful metrics at the enterprise level.