Question $5$

On January $14$ a trader enters into a long yearly baseload futures contract for electricity at a

price of $54\mathrm{.}20$ EUR$/$MWh$.$ The contract size is $1$ MW$,$ resulting in a contract volume of

$8760$MW since the delivery year has $8760$hours. On January $19$ the trader closes his long

position at a price of $52\mathrm{.}97$EUR$/$MWh$.$

Date Settlement Price Cashflow $($EUR$/$MWh$)$ Total Cashflow $($EUR$)$

Jan $1454\mathrm{.}25$

Jan $1554\mathrm{.}70$

Jan $1653\mathrm{.}53$

Jan $1753\mathrm{.}20$

Jan $1853\mathrm{.}25$

Jan $1952\mathrm{.}97$

Total

a$.$ Complete the table above and calculate the profit$/$loss position of the trader in the

market $(10$marks$)$

b$.$ Identify and explain the nature of the futures curve from the above table

c$.$ What is marking$-$to$-$market as related to a futures contract?

d$.$ What is basis risk? Identify and explain the three types of basis risk