HDP Simulator

Pace’s Hedging Decision Protocol Simulator (“Simulator”) is a web-enabled application that enables users to test various combinations of Hedging Decision Protocols (“HDPs”) across numerous commodity price scenarios.  The Simulator is a powerful management and hedge-strategy development tool which helps to rigorously examine the question: ‘How would my portfolio have performed with a given hedge strategy through a broad range of plausible market scenarios?’ 

The Simulator is based on a modular design and with the core algorithms developed in MATLAB.  The Simulator is utilized to assess virtually unlimited variants of hedging strategies for utilities, industrials, and other energy companies that purchase natural gas, oil, and power as an input to its manufacturing operations, as a fuel stock for power generation, or to deliver directly to retail customers. 

The Simulator contains more than ten years of historical, actual market forward and settlement prices, as well as multiple, five-year simulated future price paths that include comprehensive forward and settled prices.  The Simulator can examine HDP combinations over the entire period of prices or over any select period as defined by the user. 

• Simulator Operation – Overview: The Simulator provides numerous risk metrics for each forward contract month for each trade date during the simulation period.  Those metrics form the foundation upon which alternative hedging strategies are simulated and their performance can be evaluated in a quantitative, but lucid manner. 
• User Interface – Inputs: The suite of input parameters is entered individually through a sequence of browser pages and includes a combination of hedging alternatives and other input parameters.  These may include: Initial, Programmatic Protocol, Defensive Protocol, Discretionary Protocol, Contingent Protocol,  and Volume and Load Shape Parameters
• User Interface – Outputs: Upon completion of each simulation, the data and results are stored and can be viewed instantaneously through a series of reports.  The report outputs provide a highly useful basis for evaluating and comparing different hedge strategies.  In addition to average cost and risk-reduction metrics, the reports provide insights as to how each strategy performs during extreme market conditions, providing a valuable a priori understanding of the potential outliers of the strategy during the most acute market conditions.