Abstract
Energy “options” go one step further than an OTC fixed-for-floating swap contract. They can be compared to insurance policies, because there is a premium to pay but if the market moves against you there is no requirement to pay any more money. In the same way, the purchaser of an energy option is buying the right to claim price protection (or benefit as a trader) from the seller of the option if the price of the chosen energy market rises above the price specified in the contract (called the “strike price”).
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© 2005 Peter C. Fusaro and Tom James
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Fusaro, P.C., James, T. (2005). Options in Hedging Applications. In: Energy Hedging in Asia: Market Structure and Trading Opportunities. Finance and Capital Markets. Palgrave Macmillan, London. https://doi.org/10.1057/9780230510968_6
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DOI: https://doi.org/10.1057/9780230510968_6
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-51728-2
Online ISBN: 978-0-230-51096-8
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