Risk glossary

 

Bundled derivative

A derivative contract that combines two or more commodities to manage a number of related risks. For example, coal for power linked to pollution credits, where the contract compensates the coal user for any extra charges arising from the coal containing more than a certain level of sulphur. The counterparties to a deal agree to settle any differences between the delivered sulphur content of the coal and an agreed benchmark in emission allowances. The coal user is paid when the sulphur content is above the benchmark and pays out when it is below.

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