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Quanto Example

Quanto Example. Cross-Commodity Inventory Option. The structure protects Utility against price, volume, and price-volume fluctuations in a warmer than expected winter - Gas demand is lower than expected, and Utility is long gas at the end of the winter season.

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Quanto Example

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  1. Quanto Example

  2. Cross-Commodity Inventory Option • The structure protects Utility against price, volume, and price-volume fluctuations in a warmer than expected winter - Gas demand is lower than expected, and Utility is long gasat the end of the winter season. • Gas prices are low, and Utility is forced to sell its excess gas into a depressed spot market.

  3. HEATING DEGREE DAY / NYMEX NAT GAS FLOOR Payout = Max(Maximum monthly strike – actual cum. Monthly HDD, 0) * Max($5.00/MMBtu – Next month’s IF NYMEX gas price,0) * Monthly Volume / (Maximum monthly strike – Minimum monthly strike)

  4. HEATING DEGREE DAY / NYMEX NAT GAS FLOOR Scenario 1: Nov 2001 is as warm as the warmest historical November. November 2001 is substantially warmer than normal and has 586 HDD’s (equal to the historical warmest winter). December 2001’s IF NYMEX gas price is $3.77/ MMBtu. Enron pays to Utility: (923-586) * (5.00 – 3.77) * 70,000 / (923 – 586) = $ 86,100 Scenario 2: Nov 2001 is warmer than usual, but not as much as the historical warmest weather November 2001 is warmer than normal and has only 700 HDD’s. December 2001’s IF NYMEX gas price is $3.77 / MMBtu. Enron pays to Utility: (923-700) * (5.00 – 3.77) * 70,000 / (923 – 586) = $56,974.18 Scenario 3: Nov 2001 is as cold as the coldest historical November. November 2001 is cooler than normal and has only 500 HDD’s. December 2001’s IF NYMEX gas price is $3.77/ MMBtu. Enron pays to Utility: (923-923) * (5.00 – 3.77) * 70,000 / (923 – 586) = $ 0.00

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