Enron is angiotensin converting enzyme of the market maker of the energy market, it also delivers fleshly commodities, risk management, and weather derived function agreements to customers around the world. live on derivative is a kind of financial instruments to hedge the risk caused by uncertain weather. Derivatives be a kind of alternative investing that do not contain any direct value, its value views on fluctuation of the fundamental variables which can be the price of underlying asset, interest rates, indices, etc. Weather derivatives be considered as one of the derivatives because they do not have values themselves, their values are translated by other underlying variables, like rain, temperature, snow, and are traded in the stock exchange like futures.
There are several(prenominal) structures forweather derivatives, they are floor, ceiling cap, collar, swap, future contracts and option of future contracts. Investors should depend on their criteria to choose a suitable weather derivative. These contracts are used to lever, hedge or lessen the risk in the underlying by entering into a derivative contract which value varies in the opposite direction to their underlying ready and offsets part or all of it. They can also generate option ability which the value of derivatives is connected to specific character or condition.
Contract to PNW
Enron has proposed a weather protection proceeds to Pacific Northwest Electric (PNW), which produces electric power in America. Enron is the floating amount remunerator (seller) while PNW is thefixed amount payer (buyer) of theprotection product. PNW commits to buy the contract and therefore it is taking the long dress andpays the premium to Enron for the contract. The option type of this weather derivative is HDD Weather Floor, which provides PNWwith protection against volume risk when the floating amount is to a lower place the strike amount of 400 HDD. The determination period is amid November 1, 2000 and March 31, 2001. The final payment amount for the...If you want to sign on a full essay, order it on our website: Orderessay
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