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Derivatives




Energy Derivative


A derivative whose underlying asset is an energy product. Many energy products trade both over the counter and on exchanges such as derivatives on crude oil, heating oil and gasoline (both refined products), natural gas, electricity, coal, etc. Contracts may require settlement in cash or by physical delivery of the energy product. For example, the futures on Brent crude oil (traded on IPE) are usually settled in cash based on the Brent index price. The amount underlying one contract is 1000 barrels. In case of refined products such as heating oil, contract size (for example, in New York Mercantile Exchange) is 42,000 gallons.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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