The course provides the students with a profound knowledge of key concepts, relations, and models in commodity markets in general and energy markets in particular. The first part of the class is devoted to real options analysis. The concepts learnt in Derivatives and Risk Management are translated into a powerful tool to analyze irreversible investments. Optimal investment timing as well as valuation of investment projects are analyzed. The second part of the class is devoted to understanding commodity markets and corresponding derivatives markets. We emphasize the concept of convenience yields and its relations to forwards and futures markets of commodities. The class focuses on energy markets in particular. Energy markets are challenging due to the number of cross product substitutions, the various competitive settings in the sector, the institutional details of the distribution channels of the different products, the different market structures, and the highly sophisticated derivatives markets. The last part of the course links the irreversible investment decisions (the real options theory) to the models of energy market, focusing in particular on how the optimal investment decisions is related to the competitive setting of the industry and the capital structure of the firms. We revisit classical theories of capital structure irrelevance (Modigliani and Miller) and debt overhang (Myers).

During the semester all students must hand in a written 3 pages paper covering a case analysis done in a two weeks period. The paper shall provide an executive summary of the contract, its pros and cons, and some key proposals for how to improve the contract. The case analysis and case presentation will take place in groups of no more than 4 students, but the written summaries are individual.

The course is a progression course building on the knowledge and learning goals from Corporate Finance and Derivatives and Risk Management from the MSc in Advanced Economics and Finance (cand.oecon.) program or similar curriculum from the other Master’s programs, e.g. the MSc in Applied Economics and Finance.