Lecture 6, 7: Portfolio Management, Forward Contracts

Question 1

Possibilities to balance net physical positions for a BG

Answer 1

Trade on the spot market; bilateral contracts; adjust power output

Question 2

Derivative, purpose

Answer 2

Contract whose value is based on an underlying asset (e.g. a commodity). Used to mitigate risk (hedge) or speculate.

Question 3

Types of derivatives

Answer 3

Lock: transaction must be executed. Example: swaps, forwards, futures.

Option: transaction can but mustn’t be executed.