Product Overview

New options on weather from Enron are described, in particular floors, swaps, and caps on heating degree days. An electric utility is considering whether to purchase a weather derivative to offset the risk of low volume of kilowatt hours. After understanding the nature and purpose of the contract, students will structure the option in preparation for valuing it. A teaching note is available for registered faculty, along with a video supplement suitable for use with both the A case and the B case.