COMMODITY DATA MANAGEMENT
So how do you address the complexities
of curves within an application framework and what are the key requirements for curve building and management? Having the correct agile data management platform in place allows the full complement of services to be harnessed during the curve build and management processes (for instance, validation, business process management, date and process dashboard, etc.). However, there is no replacement for a targeted purpose-build application that addresses the specific areas and requirements relating to forward curves. Additionally, the application needs to
be highly configurable to account for the many input parameters and rich metadata information that are used in the build process and curve management. Examples include the curve methodology, the fair value hierarchy
Table 2: Forward Curve Attributes
Curve Attribute Name
Description
Curve Methodology Hierarchy Frequency
Segmentation
Segmentation Delivery Unit Type
Unit of Measure Decimal Places
Observation Commodity
Conversion: Density Quoting Calendar Rollover Calendar Primary Source:
Alternative Source 1 Alternative Source 2
Workflow Method Alert Notification
Notification Distribution Notification Message Export
Export Format Export Workflow Target Application
62 June 2012 Level 2
Full curve description Rules
– –
The Key Characteristics of Forward Curve Construction System
Commodity agnostic Rules-based (or other AI) curve modelling & library
– Ease of rule change & adoption – – – –
Curve testing facility Curve validation Scheduling
Lifecycle automation
– End-to-end process monitoring & alerts – – –
Back testing to ensure model integrity
Curve methodology & curve data versioning Curve visualisation
Example Description Curve Name
The frequency (resolution) of the curve
Used for power curves, e.g. Peak, Base, Off-Peak N/A (e.g. for Peak this may be 07.00:18:00) Price
US$/MT (this may be different to input prices) Can use round-up/round-down
Can select from any observation e.g. settlement, high, open, low, mid
The instrument commodity group e.g. Crudes, Natural Gas, Power
User defined or use Vendor factors Defined cal
ICE_BRENT_ROLL ICE
NYMEX Platts
Event (on data update). This could equally be on a scheduled time
Email (could be tray alert, or workflow task completion)
all@risktrading.com Curve completed. Yes
Excel
WFBootstrap1 CTRM
Target Application Identifier CTRMABC123
and target application. Table 2 offers some guidelines to the attributes and example descriptions that are necessary for a robust and automated curve build process. With the agile data management structure that is now in place (Figure 2) and the associated processes and controls, the curve building application and framework provides the structured management of all curves, methodologies and real-time process transparency, while allowing flexibility to change and adapt the curve construction. This is key to ensuring regulatory compliance, and ease of reporting with measured and controlled ‘fair value’ valuations and practices.Other key benefits include:
• Transparency – The use of a rules system allows you to break the problem down into
distinct conditions. This has the effect of making the logic more understandable to other people.
• Key Person Dependency – The fact that you have increased transparency means that
you can mitigate the centralisation of curve building knowledge across a wider pool of persons.
• Standardised Logic – Rule formation is standardised, so the rules themselves
become standardised, as opposed to writing applications with no standards.
•Direct Relationship with Knowledge – The rules can be written in a ‘natural’ language,
such as English. You therefore start writing the logic and then translate to rules, which can easily be referred back to the original knowledge.
• Centralised Knowledge Base – All the rules and libraries are server based, so they are
accessible and usable by anyone (they are also automatically kept up to date with the latest versions).
• Collaboration – Curve building logic does not need to be dealt with in isolation – many
people can contribute to the library.
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