Q: What are the characteristics of an energy source where the price has
What are the characteristics of an energy source where the price has a very high volatility and a very high rate of mean reversion? Give an example of such an energy source.
See AnswerQ: How can an energy producer use derivatives markets to hedge risks?
How can an energy producer use derivatives markets to hedge risks?
See AnswerQ: Consider a commodity with constant volatility and an expected growth rate
Consider a commodity with constant volatility and an expected growth rate that is a function solely of time. Show that, in the traditional risk-neutral world, where is the value of the commodity...
See AnswerQ: How is a typical natural gas forward contract structured?
How is a typical natural gas forward contract structured?
See AnswerQ: Suppose that each day during July the minimum temperature is Fahrenheit
Suppose that each day during July the minimum temperature is Fahrenheit and the maximum temperature is Fahrenheit. What is the payoff from a call option on the cumulative CDD during July with a str...
See AnswerQ: Why is the price of electricity more volatile than that of other
Why is the price of electricity more volatile than that of other energy sources?
See AnswerQ: Why is the historical data approach appropriate for pricing a weather derivatives
Why is the historical data approach appropriate for pricing a weather derivatives contract and a CAT bond?
See AnswerQ: ‘‘HDD and CDD can be regarded as payoffs from options on
‘‘HDD and CDD can be regarded as payoffs from options on temperature.’’ Explain this statement.
See AnswerQ: A company has 1- and 2-year bonds outstanding,
A company has 1- and 2-year bonds outstanding, each providing a coupon of 8% per year payable annually. The yields on the bonds (expressed with continuous compounding) are 6.0% and 6.6%, respectively....
See AnswerQ: Would you expect the volatility of the 1-year forward price
Would you expect the volatility of the 1-year forward price of oil to be greater than or less than the volatility of the spot price? Explain your answer.
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