Deck 24: Weather, Energy and Insurance Derivatives

Question 1

A typical reinsurance contract: choose one)

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

Answer 1

D

Question 2

For an equity investor, a CAT bond has: choose one)

A) A great deal of systematic risk
B) Very little systematic risk
C) A moderate amount of systematic risk
D) Negative systematic risk

Answer 2

B

Question 3

Weather derivatives are frequently used to: choose one)

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

Answer 3

A

Question 4

Which of the following typically has the highest volatility? choose one)

A) Crude oil
B) Natural gas
C) Electricity

Question 5

On a certain day, the highest temperature was 38˚C and the lowest temperature was 26˚C.
i) What was the CDD for the day? _______
ii) What was the HDD for the day? _______

Question 6

Name two refined products of oil on which futures trade.
_ _ _ _ _ _ _ and _ _ _ _ _ _ _ _

Question 7

Which of the following typically has the lowest volatility? choose one)

A) Crude oil
B) Natural gas
C) Electricity

Question 8

A 5×8 contract provides electricity: choose one)

A) From 11:00pm to 7:00am on five successive days
B) From 8:00am to 4:00pm on five successive days
C) For any 5 hours of a day on eight successive days
D) For any 8 hours of a day in five successive days