The right of refusal
Traders have learned that giving away free financial options can be costly. However, free options can take many forms. Brett Humphreys and Tamara Weinert discuss the value of a risk management option that can easily be given away
A trader has come to Joe Risk Manager with a new product that she wants to trade. With this product the purchaser agrees to buy a fixed volume at an index price at some future time. For example, 200,000 mmBtu of natural gas in December 2006 based on the closing December 2006 Nymex price. In addition, at any time between now and delivery, the user can switch all or any portion of the contract volume to a fixed price, based upon where the Nymex is trading on that future date. In other words, the
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