Posted: February 1st, 2024

Provide a critical review of literature in energy derivative

Provide a critical review of literature in energy derivative

Assignment Question

Implementing an energy risk management program can protect your company specially the energy-based ones from the negative financial and operational impacts of exposure to the energy markets. Successful programs apply forward-looking market analysis to your company’s unique risk appetite. Energy derivatives are important tools to mitigate the risks associated with energy-related businesses.

Energy Derivatives is a derivative instrument in which the underlying asset is based on energy products including oil, natural gas and electricity, which trade either on an exchange or over-the-counter. Energy derivatives can be options, futures or swap agreements, among others. The value of a derivative will vary based on the changes of the price of the underlying energy product.

Beginning in the 1970s, deregulation dramatically increased the degree of price uncertainty in the energy markets, prompting the development of the first exchange-traded energy derivative securities. The success and growth of these contracts attracted a broader range of participants to the energy markets and stimulated trading in an even wider variety of energy derivatives. Today, many exchanges and over-the-counter markets worldwide offer futures, futures options, swap contracts, and exotic options on a broad range of energy products, including crude oil, fuel oil, gasoil, heating oil, unleaded gasoline, and natural gas.

You are required to provide a critical review of literature in Energy Derivatives preferably those traded in your country. Your assignment should be written in a research format including introduction, literature review, discussion, and conclusion.

General Assessment Research Topics – Criteria

The criteria below detail the areas, which will be taken into account when the assignment is marked.

1. To address the subject satisfactorily, a typed format is mandatory. Pass assignments are expected to be legible, tidy, well organized and written in clear understandable English.

2. High grades [70%, 75%, +80%] need to demonstrate sustained coherent analytical ability. A systematic approach to analysis and evaluation is required for grades 60% to 85% – for grades at the higher end of the scale, integration and synthesis is a requirement. The quality of the arguments used to develop and support prescriptions/recommendations are, in our view, the essential test of integration.

3. Evidence of reading and some understanding of models and concepts are needed to achieve a pass grade [50%]. Integration of theory and practice is expected for any grade above 65%.

4. You are expected to clearly state any assumptions you make, and support statements and theories by referencing to appropriate sources. [This is essential for higher grades but does not necessarily prejudice a pass mark [50%] if it is missing].

5. The assignment is to be submitted as a single written report of between 5000, to 6000 words.

6. As well as submitting a hard copy of your assignment you are also required to submit the electronic version. Unless both, hard copy and electronic versions are provided it will not be counted as submitted.

7. Proper referencing and citation should be observed. Harvard Referencing should be followed.

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