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Options in Hedging Applications

  • Peter C. Fusaro
  • Tom James
Part of the Finance and Capital Markets book series (FCMS)

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”).

Keywords

Price Reference Option Strategy Energy Market Strike Price Barrier Option 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Peter C. Fusaro and Tom James 2005

Authors and Affiliations

  • Peter C. Fusaro
  • Tom James

There are no affiliations available

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