A weather derivative combination that is mainly used in fuel cost risk management to limit fuel cost exposure to a preset range depending on the severity of weather. This collar strategy involves the selling of a degree day call on a high strike and the purchase of a degree day put on a lower strike, creating whereby a maximum bound (cap) and minimum bound (floor), or a range, in which degree days fluctuate without extremely impacting operations.
![Fincyclopedia Fincyclopedia](https://fincyclopedia.net/wp-content/uploads/2019/11/Logo-for-Web-01.png)
Comments