Enron Weather Derivatives Case Study Solution
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1.         Why do they call these contracts derivatives?  Where is the
optionality in these contracts?

2.        Please draw a diagram of payoffs at the end of the life for the
contract presented in exhbit 1.

3.        Please deconstruct the options embedded in the contract given in
Exhibit 1.  (Are they puts or calls?  Are the positions long or short from
PNW’s standpoint?)

4.        What are the pros and cons of weather protection from PNW’s
5.        Why is Enron in this situation?  Why does Enron stand to gain?

6.        How should Mary Watts proceed to assess, and decide upon, the use of weather protection for PNW?  What criteria should she
use to make her decision?

7.        Summary of whether or not she should take the derivative contract
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