The Oxford Princeton Programme - Energy Derivatives Pricing, Hedging and Risk Management pre-test

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Energy Derivatives Pricing, Hedging and Risk Management - Eligibility Pre-Test

The Oxford Princeton Programme strives to identify the most appropriate training solution for each individual. Consequently, we have devised a questionnaire that you may use to guide you to the most appropriate course and to indicate the level of knowledge you will acquire within the Energy Derivatives Pricing, Hedging and Risk Management (DPH2) course.

The test below is not "graded". It is meant to give you and your training coordinator an idea of how comfortable you are with the prerequisite material. If this test comfortably takes you one hour or less, you are well prepared to enter the course.

We will review all of these tests to ensure all delegates are entering at a similar level.

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When is a forward curve in Contango?
1. When prices at the long end of the curve are higher than prices at the short end of the curve
2. When the curve has a highly seasonal component
3. When prices at the long end of the curve are lower than prices at the short end of the curve
4. None of the above

What is the difference between a forward and a swap?
1. A forward is a combination of swaps
2. A swap is a strip of forward contracts
3. Swaps are OTC instruments but forwards are exchange traded contracts
4. A swap is a forward that contains embedded options

What is the difference between a forward and a futures Contract?
1. A forward is traded in an organized exchange while a futures contract is traded OTC
2. A futures is traded in an organized exchange while a forward contract is OTC
3. There is no difference

List four variables that drive changes in European option premiums?

Which variables drive changes in spread option premiums?
1. Forward prices at each leg of the spread
2. Volatilities for each leg of the spread
3. Correlations
4. All of the above

What is the difference between linear vs. non-linear payoffs in energy derivatives contracts?

Which instruments have non-linear payoffs?
1. Average price options
2. American options
3. Extendable swaps
4. All of the above

What instrument has a similar behavior to a 'lottery ticket'?
1. An OTM option
2. An ITM option
3. A forward contract
4. A swap

Which option is cheaper assuming that they are similar but their strikes are different?
1. An OTM option
2. An ITM option
3. An ATM option
4. It is a function of the volatility of the underlying

The intrinsic value of an ATM option is:
1. Equal to the extrinsic value
2. 50% of the value of the option
3. The value attributed to the volatility of the underlying
4. Zero

What is an Asian option?
1. An option that trades in Asian markets
2. An average price option
3. An 'all-or-nothing' option
4. A swap with an option embedded on it

Is an Asian option more expensive or cheaper than an European option on the same underlying asset, same maturity, and the same strike?
1. More expensive
2. Cheaper
3. The costs are similar
4. It depends on whether the underlying is oil or gas

What is the 'spark spread'?
1. The difference between electricity and gas prices
2. The difference between gas prices at two hubs
3. The difference between gas and oil prices
4. The differences between electricity prices at two hubs

How can we decompose an 'extendable swap' into its building blocks in order to perform mark-to-model calculations on a regular basis?
If our VaR for one day horizon and at a probability level of 95% is 10 million Euros, that means:
1. The likelihood that our losses will exceed 10,000,000 Euros over the next 24 hours is 95%
2. The likelihood that our losses will exceed 10,000,000 Euros over the next 24 hours is 99%
3. There is a 5% likelihood that over the next 24 hours we will lose less than 10,000,000 Euros
4. There is a 5% likelihood that over the next 24 hours we will lose more than 10,000,000 Euros

What is the meaning of the selected horizon in the VaR calculations?
1. Maturity of the positions in the portfolio
2. Amount of time expected to close a particular position
3. Period of time over which we are measuring potential portfolio fluctuations
4. Accounting period

If we calculate VaR at the 95% for a 1-day horizon, that means that we should expect to experience losses beyond VaR:
1. Approximately once a month
2. Approximately once a week
3. Approximately once a quarter
4. Approximately once a year

What characterizes correlations amongst energy prices?
1. Correlations are dependent on the historical window used for calculations
2. Correlations generally have a strong seasonal component
3. Correlations can be highly unstable
4. All of the above

Stress tests focus on extreme events while VaR generally covers normal market conditions.
1. TRUE
2. FALSE

The concept of Fair Value in FAS 157 is based on:
1. The theoretical option value using Black Scholes
2. The 'fair' price of the asset or liability estimated by each firm according to their best judgment
3. The exchange price in an orderly transaction to sell the asset or transfer the liability
4. The purchase price of the asset