An energy derivative which involves trading the prices two counterparties pay for an energy commodity, such as oil, gas, coal, etc. For instance, a firm that consumes oil at a variable rate can enter into an energy swap so that it can buy oil at a fixed rate for a specific period of time. In such a swap, no transfer of energy (oil) takes place, rather the counterparties only exchange the prices paid for oil.
November 19, 2023