MM
symbol in the energy market denoting one million, e.g. MMBTU = millions of BTUs.

MAKE-UP GAS
In a gas buyer’s contract there are often terms which allow the buyer to take make-up gas in contract periods after it has been paid for but not taken. There may be a limit to the amount of make-up the buyer can recover in any given period.

MAQ
In Gas, Maximum annual quantity

MARKET MAKER
An energy trader or energy trading firm which is prepared to buy and sell in the cash or derivatives market to provide a two-sided (bid/ask) market and greater liquidity.

MARGIN
See futures contract.

MARKET-ON-CLOSE
An order to buy or sell a specified amount of futures contracts at the price when the market closes.

MARKET RISK
Market risk is the risk that value will be lost due to a change in some market variable, such as commodity or equity prices, interest rates or foreign exchange rates. The market risk of a derivatives position may arise from a change in the value of the underlying or from other sources such as implied volatility or time decay (theta).

MARK-TO-MARKET
To mark-to-market is to calculate the value of a financial instrument (or portfolio of such instruments) at current market rates or prices of the underlying. Marking-to-market on a daily (or more frequent) basis is often recommended in risk management guidelines.

MDQ
Maximum daily quantity. The upper limit for the amount of gas a buyer may take in a single 24-hour period.

MEAN REVERSION
The process under which prices constantly revert over time to an equilibrium level. A concept much discussed with reference to the hotly debated topic of how to price forward power in a deregulated market.

MEGAJOULE (MJ)
One million joules (sometimes MMJ).

MEGAWATT (MW)
One million watts (sometimes MMW).

METERS
Equipment used to measure the movement of gas or electricity flowing across various points in the system. Where meters giving daily volume consumption are used, the sites are known as daily metered (DM) sites. At smaller supply points, readings are taken at longer intervals and these are called non-daily metered (NDM) sites.

METRIC TON (tonne)
A metric ton is 2204.62 pounds (lbs).

MMBTU
Millions of British Thermal Units.

MMSCFPD
Millions of cubic feet of gas per day.

MONTE CARLO SIMULATION
Monte Carlo simulation is a method of pricing derivatives by simulating the evolution of the underlying variable(s) many times over. The average outcome of the simulation is an approximation of the derivative’s value.  Monte Carlo is useful in the valuation of complex derivatives for which exact analytical solutions have not been found, but it can be very computationally intensive. Monte Carlo simulation can also be applied to estimate the value-at-risk of that portfolio.

MOVING AVERAGE
The average of commodity prices constructed for a period as short as a few days or as long as several years which shows trends for the latest interval. For example, a thirty-day moving average includes yesterday’s figures; tomorrow the same average will include today’s figures and will no longer show those for the earliest date included in yesterday’s average. Every day it records figures for the latest day and drops those for the earliest day.

MOVING STRIKE OPTION
Any option whose strike is reset over time.

MULTI-FACTOR MODEL
Any model in which there are two or more uncertain parameters in the option price (one-factor models incorporate only one cause of uncertainty: the future price). Such models can be more realistic than one-factor models, particularly in modelling complex variables such as interest rates. Other problems, such as modelling spread options, automatically require a multi-factor model.

MULTI-FACTOR OPTION
Any option, such as a spread option, whose payout is linked to the performance of more than one asset. Their value is usually strongly dependent on the correlation between underlying assets.

MUTUAL OFFSET SYSTEM
A margining system for derivatives exchanges in which positions on different exchanges can be offset with each other. If a participant has a long position on one exchange but a short position on another in a fungible (compatible) contract, they can reduce (or eliminate) margin payments on one exchange because overall exposure has been reduced by netting over the two exchanges.

MW
Megawatt (1000 KW)