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Shape Risk
Shape risk in finance is a type of basis risk when Hedge_(finance), hedging a load profile with standard hedging products having a lower granularity. In other words a commodity supplier wants to pre-purchase supplies for expected demand, but can only buy in fixed amounts that are bigger or smaller than the demand forecasted. This means it has to either over order or under order and make up the difference at the time of delivery at the spot price which might be much higher. Shape risk is also related to commodity risk. For example an electricity provider has to produce or buy electricity in advance in order to distribute to its consumers based on forecasts i.e. how much energy will be consumed every minute on the following day. Such forecasts are usually based on the average historical consumption of the same set of customers; however, the provider can only produce e.g. only hourly blocks of electricity of 1MWh, and not smaller quantities. There is a certain financial risk that t ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitability asse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Basis Risk
Basis risk in finance is the risk associated with imperfect hedging due to the variables or characteristics that affect the difference between the futures contract and the underlying "cash" position. It arises because of the difference between the price of the asset to be hedged and the price of the asset serving as the hedge before expiration, namely b = S - F. Barring idiosyncratic influence by the other aspects to be enumerated just below, by the time of expiration this simple difference will be eliminated by arbitrage. The other aspects that give rise to basis risk include a) Quality - arising when the hedge in place has a different grade which is not perfectly correlated with the basis; b) Timing - arising due to mismatch between the expiration date of the hedge asset and the actual selling date of the underlying asset; c) Location/Transportation Costs - arising due to the difference in the location of the asset being hedged and the asset serving as the hedge, and which typ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hedge (finance)
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts. Public futures markets were established in the 19th century to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations. Etymology Hedging is the practice of taking a position in one market to offset and balance against the risk adopted by assuming a position in a contrary or opposing market or investment. The word hedge is from Old English ''hecg'', originally any fence, living or artificial. The first known use of the word ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Load Profile
In electrical engineering, a load profile is a graph of the variation in the electrical load versus time. A load profile will vary according to customer type (typical examples include residential, commercial and industrial), temperature and holiday seasons. Power producers use this information to plan how much electricity they will need to make available at any given time. Teletraffic engineering uses a similar load curve. Power generation In a power system, a load curve or load profile is a chart illustrating the variation in demand/electrical load over a specific time. Generation companies use this information to plan how much power they will need to generate at any given time. A load duration curve is similar to a load curve. The information is the same but is presented in a different form. These curves are useful in the selection of generator units for supplying electricity. Electricity distribution In an electricity distribution grid, the load profile of electricity u ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Granularity
Granularity (also called graininess), the condition of existing in granules or grains, refers to the extent to which a material or system is composed of distinguishable pieces. It can either refer to the extent to which a larger entity is subdivided, or the extent to which groups of smaller indistinguishable entities have joined together to become larger distinguishable entities. Precision and ambiguity Coarse-grained materials or systems have fewer, larger discrete components than fine-grained materials or systems. * A coarse-grained description of a system regards large subcomponents. * A fine-grained description regards smaller components of which the larger ones are composed. The concepts granularity, coarseness, and fineness are relative; and are used when comparing systems or descriptions of systems. An example of increasingly fine granularity: a list of nations in the United Nations, a list of all states/provinces in those nations, a list of all cities in those states, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Commodity Risk
Commodity risk refers to the uncertainties of future market values and of the size of the future income, caused by the fluctuation in the prices of commodities. These commodities may be grains, metals, gas, electricity etc. A commodity enterprise needs to deal with the following kinds of risks: * Price risk is arising out of adverse movements in the world prices, exchange rates, basis between local and world prices. The related price area risk usually has a rather minor impact. * Quantity or volume risk * Cost risk (Input price risk) * Political risk Groups at risk There are broadly four categories of agents who face the commodities risk: * Producers (farmers, plantation companies, and mining companies) face price risk, cost risk (on the prices of their inputs) and quantity risk * Buyers (cooperatives, commercial traders and trait ants) face price risk between the time of up-country purchase buying and sale, typically at the port, to an exporter. * Exporters face the same risk ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Risk
Financial risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent. A science has evolved around managing market and financial risk under the general title of modern portfolio theory initiated by Dr. Harry Markowitz in 1952 with his article, "Portfolio Selection". In modern portfolio theory, the variance (or standard deviation) of a portfolio is used as the definition of risk. Types According to Bender and Panz (2021), financial risks can be sorted into five different categories. In their study, they apply an algorithm-based framework and identify 193 single financial risk types, which are sorted into the five categories market risk, liquidity risk, credit risk, business risk and investment risk. Market risk The four standard market risk factors are equity ri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Spot Contract
In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the trade date. The settlement price (or rate) is called spot price (or spot rate). A spot contract is in contrast with a forward contract or futures contract where contract terms are agreed now but delivery and payment will occur at a future date. Spot prices and future price expectations Depending on the item being traded, spot prices can indicate market expectations of future price movements in different ways. For a security or non-perishable commodity (e.g. silver), the spot price reflects market expectations of future price movements. In theory, the difference in spot and forward prices should be equal to the finance charges, plus any earnings due to the holder of the security, according to the cost of carry model. For example, on a s ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
