Glossary Of Terms
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HYDRO
Hydropower, hydraulic power or water power is power that is derived from the force or energy of moving water, which may be harnessed for useful purposes. (Source, Wikipedia)
HEAT RATE
A measure of how efficiently an electric generator converts thermal energy into electricity and a key determinant of the spark spread. More precisely, a heat rate is the ratio of British Thermal Units of fuel consumed to the kilowatt hours of electricity produced. Thus, the lower the heat rate, the higher the conversion efficiency.
HEDGE
The initiation of a position in a futures or options market that is meant to be a temporary substitute for the sale or purchase of the actual commodity.
HEDGE ACCOUNTING
Hedge accounting is the practice of deferring gains and losses on financial market hedges until the corresponding gain or loss in the underlying exposure is recognised. Hedge accounting allows companies to incorporate the cost of hedging into the cost of the exposure. Gains are thereby offset against losses. This reduces the volatility of earnings.
HEDGE RATIO
The ratio, determined by the option’s delta, of futures to options required to establish a position which involves no price risk.
HISTORICAL SIMULATION
A method of calculating value-at-risk which uses historical data to assess the impact of market moves on a portfolio. A current portfolio is subjected to historically recorded market movements; this is used to generate a distribution of returns on the portfolio. This distribution can then be used to calculate the maximum loss with a given likelihood – ie, the value-at-risk. Because historical simulation uses real data, it can capture unexpected events and correlations which would not necessarily be predicted by a theoretical model.
HISTORICAL VOLATILITY
The annualised standard deviation of percentage changes in futures prices over a specific period. It is an indication of past volatility in the marketplace.
HYDROCARBONS
Organic compounds consisting of hydrogen and carbon. They may exist as solids, liquids or gases.