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Classic cutting edge: Swing options and the quest for valuation

Classic cutting edge - Swing options - the quest for valuation

In the energy world – in particular natural gas and electricity – many contracts incorporate flexibility-of-delivery options. Subject to daily as well as periodic (monthly, or semi-annual) constraints, they permit the option holder to exercise the right repeatedly to receive greater or smaller amounts of energy. Consequently, these options have an implicit dependence through time: the exercise of an option today limits, and may eliminate, the ability to draw such energy tomorrow. These options

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