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Extensive Instrument Coverage
Swing contracts give the holder the right to take daily delivery of a certain nominated amount of commodity on certain future dates at a fixed price. The holder also has the right to change - or swing - this delivery amount. A swing right can be exercised on each delivery date. A predetermined maximum number of swings can be exercised during the life of the contract and overall maximum and minimum amount constraints can apply during the same time period. The supported set of instruments (see Coverage) can be extended by combining and chaining functions to value complex transactions. Swing includes templates that can be easily customized for specialized trades such as November-March peaking options and annual strips. FEA regularly expands instrument coverage and publishes new spreadsheet templates. On-Off Peak schedules are allowed to accommodate power swing contracts.
Cutting-edge Pricing Models
You can value options using several price process models.
- The Black-style model values options the traditional way, using lognormal
price diffusion.
- The mean-reversion model also uses lognormal price diffusion, but accounts
for the tendency of commodity prices to move back to a long-run average level.
Flexible Instrument Modeling
The swing functions provide flexible instrument modeling features, including:
- Daily and nominated swing delivery amounts.
- Ratable or end-of-period settlement.
- Single period and contractual minimum and maximum swing delivery amount
constraints.
- Single period and contractual swing right constraints.
- Calls (swing-up), puts (swing-down) and straddles (swing-up or swing-down).
- Fixed-price and floating swing contracts.
Comprehensive Results
Several price and risk measures can be calculated with a single function call. The scalar risk measures represent discrete changes in value rather than rates of change. The functions also return delta, gamma, and vega risk curves, which yield the true exposures to the entire price and volatility term structure (unlike traditional risk measures that represent spot exposures only), permitting precise hedging.
Decision Support: Optimal Exercise Indicator
Swing functions display an optimal exercise indicator. This indicator specifies if a swing right should be immediately exercised and, if so, whether the delivery amount should be increased or decreased.
View the @ENERGY/Swing product profile .
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