The right of refusal

A trader has come to Joe Risk Manager with a new product that she wants to trade. With this product the purchaser agrees to buy a fixed volume at an index price at some future time. For example, 200,000 mmBtu of natural gas in December 2006 based on the closing December 2006 Nymex price. In addition, at any time between now and delivery, the user can switch all or any portion of the contract volume to a fixed price, based upon where the Nymex is trading on that future date. In other words, t

To continue reading...