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.