What are the characteristics of an energy source

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1. 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.

2. How can an energy producer use derivatives markets to hedge risks?

3. Explain how a 5 × 8 option contract for May 2009 on electricity with daily exercise works. Explain how a 5 × 8 option contract for May 2009 on electricity with monthly exercise works. Which is worth more?

4. Explain how CAT bonds work.

Reference no: EM131241269

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