Can someone explain gas daily options vs. American options?
Title says it. I think my current boss is just making it more complicated than it really is, that or he just isn't explaining it right.
What is the difference between a gas daily option and an American option? They are both based on the same underlying monthly futures, right? Or no?
By "daily options" does he mean european options? They can only be exercised on the date of expiration, whereas american ones can be exercised any day up to and including the expiry date.
Nm, he was actually talking about power daily options, and it makes sense now. Explanation: http://www.dm.unibo.it/ssf/2008/papers_Geman/fundamentals.pdf
"A second category of power options is comprised of daily options. These options are specified for a given period of time (year, season, particular month, etc) and can be exercised every day during this period. For example, the owner of the July-August 1999 daily call option can issue, if he so chooses, an advance notice on August 11 to receive a specified volume of electricity on August 12 during the on-peak hours, paying a price k per megawatthour."
So basically, calling it American/European only deals with when it can be exercised, but you need specification on monthly or daily to let you know if, when exercised (whenever that is), the counterparty is delivering physical power for a whole calendar month, or just one specific day in that calendar month.
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