Question 1

Which of the following are products refined from crude oil?

Accepted Answer

A)  Heating oil 
B)  Gasoline 
C)  Kerosene 
D)  All of the above 
A)  Heating oil 
B)  Gasoline 
C)  Kerosene 
D)  All of the above D

Question 2

Which of the following are least likely to use weather derivatives?

Accepted Answer

A)  Energy producers 
B)  Food and drink manufacturers 
C)  Companies in the leisure industry 
D)  Automobile manufacturers 
A)  Energy producers 
B)  Food and drink manufacturers 
C)  Companies in the leisure industry 
D)  Automobile manufacturers D

Question 3

Which of the following is the average of CDD and HDD for a day?

Accepted Answer

A)  The highest temperature during the day 
B)  The lowest temperature during the day 
C)  The average temperature during the day 
D)  None of the above 
A)  The highest temperature during the day 
B)  The lowest temperature during the day 
C)  The average temperature during the day 
D)  None of the above D

Question 4

Which of the following typically has the highest volatility?

Accepted Answer

A)  Crude oil 
B)  Natural gas 
C)  Electricity 
D)  Sometimes crude oil and sometimes natural gas 
A)  Crude oil 
B)  Natural gas 
C)  Electricity 
D)  Sometimes crude oil and sometimes natural gas

Question 5

Which of the following describes the period during which a "5 times 8" contract provides electricity?

Accepted Answer

A)  From 11pm to 7am on five successive days 
B)  From 8am to 4pm on five successive days 
C)  For any 5 hours of a day on 8 successive days 
D)  For any 8 hours of a day in five successive days 
A)  From 11pm to 7am on five successive days 
B)  From 8am to 4pm on five successive days 
C)  For any 5 hours of a day on 8 successive days 
D)  For any 8 hours of a day in five successive days

Question 6

On a certain day the highest temperature is 77 degrees and the lowest temperature is 61 degrees. What is the day's HDD?

Accepted Answer

A)  5 
B)  12 
C)  4 
D)  0 
A)  5 
B)  12 
C)  4 
D)  0

Question 7

Which of the following is a common use of weather derivatives?

Accepted Answer

A)  Hedge the volume of electricity that will be demanded by customers in the summer 
B)  Hedge the price of oil that must be purchased in the winter 
C)  Hedge the price of electricity that must be purchased in the summer 
D)  Hedge the price and volume of gas that must be purchased for heating in the winter 
A)  Hedge the volume of electricity that will be demanded by customers in the summer 
B)  Hedge the price of oil that must be purchased in the winter 
C)  Hedge the price of electricity that must be purchased in the summer 
D)  Hedge the price and volume of gas that must be purchased for heating in the winter

Question 8

Which of the following is NOT seasonal?

Accepted Answer

A)  Spot electricity 
B)  Spot natural gas 
C)  Electricity futures prices 
D)  Spot price of corn 
A)  Spot electricity 
B)  Spot natural gas 
C)  Electricity futures prices 
D)  Spot price of corn

Question 9

An August CDD weather option is offered on the cumulative monthly CDD at an Atlanta weather station. An investor has a long call with a strike price of 375 and a short call with a strike price of 400. The payment is $10,000 per degree day. What is the maximum payoff?

Accepted Answer

A)  $500,000 
B)  $250,000 
C)  $100,000 
D)  $50,000 
A)  $500,000 
B)  $250,000 
C)  $100,000 
D)  $50,000

Question 10

Which of the following describes the period during which a "5 times 16" contract provides electricity?

Accepted Answer

A)  From 7am to 11pm on five successive days 
B)  From 4pm to 8am on five successive days 
C)  For any 5 hours of a day on 16 successive days 
D)  For any 16 hours of a day in five successive days 
A)  From 7am to 11pm on five successive days 
B)  From 4pm to 8am on five successive days 
C)  For any 5 hours of a day on 16 successive days 
D)  For any 16 hours of a day in five successive days

Question 11

When a reinsurer covers the layer of hurricane losses for an insurance company between $20 million and $30 million, which of the following describes the insurance company's losses?

Accepted Answer

A)  A bull spread on total hurricane losses 
B)  A bear spread on total hurricane losses 
C)  A long call option on total hurricane losses 
D)  A short put option on total hurricane losses 
A)  A bull spread on total hurricane losses 
B)  A bear spread on total hurricane losses 
C)  A long call option on total hurricane losses 
D)  A short put option on total hurricane losses

Question 12

Which of the following describes a typical reinsurance contract?

Accepted Answer

A)  Covers a percentage of all losses by an insurance company 
B)  Covers all losses of the insurance company up to a certain amount 
C)  Covers all losses of the insurance company above a certain amount 
D)  Covers all losses of the insurance company between two amounts 
A)  Covers a percentage of all losses by an insurance company 
B)  Covers all losses of the insurance company up to a certain amount 
C)  Covers all losses of the insurance company above a certain amount 
D)  Covers all losses of the insurance company between two amounts

Question 13

Which of the following might we expect to be the result of global warming?

Accepted Answer

A)  An decrease in observed CDDs 
B)  An increase in observed CDDs 
C)  An increase in observed HDDs 
D)  None of the above 
A)  An decrease in observed CDDs 
B)  An increase in observed CDDs 
C)  An increase in observed HDDs 
D)  None of the above

Question 14

Which of the following is NOT true about electricity?

Accepted Answer

A)  Supply and demand for electricity are matched within 140 control areas in the US, then excess power sold to other control areas 
B)  The ability to sell excess power is constrained by transmission capacity 
C)  Electricity is a commodity that can be easily stored 
D)  Air conditioning is a big use of electricity 
A)  Supply and demand for electricity are matched within 140 control areas in the US, then excess power sold to other control areas 
B)  The ability to sell excess power is constrained by transmission capacity 
C)  Electricity is a commodity that can be easily stored 
D)  Air conditioning is a big use of electricity

Question 15

Where are oil, gas, and electricity derivatives traded?

Accepted Answer

A)  On exchanges and the OTC market 
B)  On exchanges, but not on the OTC market 
C)  On the OTC market, but not on exchanges 
D)  Oil is traded in both markets, but the other two are traded only in the OTC market 
A)  On exchanges and the OTC market 
B)  On exchanges, but not on the OTC market 
C)  On the OTC market, but not on exchanges 
D)  Oil is traded in both markets, but the other two are traded only in the OTC market

Question 16

Which of the following describes a CAT bond?

Accepted Answer

A)  Has a great deal of systematic risk 
B)  Has very little systematic risk 
C)  Has a moderate amount of systematic risk 
D)  Has negative systematic risk 
A)  Has a great deal of systematic risk 
B)  Has very little systematic risk 
C)  Has a moderate amount of systematic risk 
D)  Has negative systematic risk

Question 17

Which of the following typically has the lowest volatility?

Accepted Answer

A)  Crude oil 
B)  Natural gas 
C)  Electricity in the winter 
D)  Electricity in the summer 
A)  Crude oil 
B)  Natural gas 
C)  Electricity in the winter 
D)  Electricity in the summer

Question 18

How can an energy producer hedge its risks?

Accepted Answer

A)  Use weather derivatives for price risk and energy derivatives for volume risk 
B)  Use energy derivatives for price and volume risk 
C)  Use energy derivatives for price risk and weather derivatives for volume risk 
D)  Use weather derivatives for price and volume risk 
A)  Use weather derivatives for price risk and energy derivatives for volume risk 
B)  Use energy derivatives for price and volume risk 
C)  Use energy derivatives for price risk and weather derivatives for volume risk 
D)  Use weather derivatives for price and volume risk

Question 19

Which of the following is the basis for calculating HDD and CDD?

Accepted Answer

A)  The average temperature during the day 
B)  The average of the highest and lowest temperature during the day 
C)  The temperature at 12 noon during the day 
D)  None of the above 
A)  The average temperature during the day 
B)  The average of the highest and lowest temperature during the day 
C)  The temperature at 12 noon during the day 
D)  None of the above

Question 20

On a certain day the highest temperature is 77 degrees and the lowest temperature is 61 degrees. What is the day's CDD?

Accepted Answer

A)  5 
B)  12 
C)  4 
D)  0 
A)  5 
B)  12 
C)  4 
D)  0

Exam 24: Weather, Energy, and Insurance Derivatives

Which of the following are products refined from crude oil?

Which of the following are least likely to use weather derivatives?

Which of the following is the average of CDD and HDD for a day?

Which of the following typically has the highest volatility?

Which of the following describes the period during which a "5 times 8" contract provides electricity?

On a certain day the highest temperature is 77 degrees and the lowest temperature is 61 degrees. What is the day's HDD?

Which of the following is a common use of weather derivatives?

Which of the following is NOT seasonal?

An August CDD weather option is offered on the cumulative monthly CDD at an Atlanta weather station. An investor has a long call with a strike price of 375 and a short call with a strike price of 400. The payment is $10,000 per degree day. What is the maximum payoff?

Which of the following describes the period during which a "5 times 16" contract provides electricity?

When a reinsurer covers the layer of hurricane losses for an insurance company between $20 million and $30 million, which of the following describes the insurance company's losses?

Which of the following describes a typical reinsurance contract?

Which of the following might we expect to be the result of global warming?

Which of the following is NOT true about electricity?

Where are oil, gas, and electricity derivatives traded?

Which of the following describes a CAT bond?

Which of the following typically has the lowest volatility?

How can an energy producer hedge its risks?

Which of the following is the basis for calculating HDD and CDD?

On a certain day the highest temperature is 77 degrees and the lowest temperature is 61 degrees. What is the day's CDD?

Introduction

Mechanics of Futures Markets

Hedging Strategies Using Futures

Interest Rates

Determination of Forward and Futures Prices

Interest Rate Futures

Swaps

Securitization and the Credit Crisis of 2007

Mechanics of Options Markets

Properties of Stock Options

Trading Strategies Involving Options

Introduction to Binomial Trees

Valuing Stock Options: the Bsm Model

Employee Stock Options

Options on Stock Indices and Currencies

Futures Options

The Greek Letters

Binomial Trees in Practice

Volatility Smiles

Value at Risk

Interest Rate Options

Exotic Options and Other Nonstandard Products

Credit Derivatives

Filters