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

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Advanced 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 Advanced Energy Derivatives Pricing, Hedging and Risk Management (DPH3) 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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Which 'moment' measures the 'tail' a probability distribution?
1. Mean
2. Standard deviation
3. Skewness
4. Kurtosis

How can an extendable swap be decomposed?
1. A swap and an option on a swap
2. A swap and a put option
3. Two swaps with different maturities
4. A swap and a short forward

A natural gas swing contract can be valued and hedged as the following instrument:
1. Strip of inter-dependent options
2. Strip of American options
3. Strip of Bermudan options
4. Strip of European options

A zero cost collar is a combination of:
1. A long call and a short put
2. A long call and a long put
3. A short put and a short put
4. A short call and a long forward

A zero cost collar has limited risks because it is zero cost.
1. True
2. False
3. It depends on the underlying contract

The options strategy that represents a pure 'volatility play' is:
1. Long call
2. Long put
3. Long straddle
4. Zero cost collar

If we assume that the spread between two prices is normally distributed, which of the following statements is FALSE?
1. The normality assumption means the spread may take positive or negative values
2. The normality assumption means the spread may only take positive values
3. The spread variability in absolute terms does not increase as the size of the spread increases
4. Correlations are not needed to model the spread

Assuming that the daily volatility of WTI price is 2%, what is the approximate annualized volatility assuming that returns follow a normal distribution and they are independent and identically distributed (i.i.d.)?
1. 69%
2. 15%
3. 20%
4. 32%

Which of the following are VaR methodologies:
1. Variance-covariance and gap analysis
2. Option sensitivity analysis and historical simulation
3. Variance-covariance and historical simulation
4. Volumetric analysis and Monte Carlo

In historical simulation, volatilities and correlations of the market risk factors are used to generate scenarios.
1. True
2. False
3. Only if the portfolio contains European options
4. Only in the case of natural gas derivatives, but not oil or power

Which VaR methodology is least effective for measuring the risk of option positions?
1. Variance-covariance approach
2. Monte Carlo simulations
3. Historical simulations

S&P's Liquidity Risk Survey consists of:
1. A way for S&P to determine market liquidity
2. A stress test conducted by S&P related to the liquidity of financial firms
3. A set of ratios that firms need to calculate to determine their liquidity risk under extreme market and credit conditions
4. A survey to determine the impact of counterparty risk on energy markets

Only one of the following statements is correct:
1. VaR is the maximum loss that we can experience over a given period of time
2. VaR is the minimum loss that we can experience over a particular period of time
3. VaR is the maximum likely loss over a particular period of time with a given probability
4. VaR is the worst case scenario

If we want to hedge Jet Fuel with Heating Oil, and they have the same volatility and a correlation equal to +75%, the optimal hedge ratio to determine the Heating Oil volume would be:
1. 100% of the Jet Fuel volume
2. 120% of the Jet Fuel volume
3. 75% of the Jet Fuel volume
4. 25% of the Jet Fuel volume

We want to hedge Jet Fuel with Heating Oil. If Heating Oil's volatility is twice the volatility of Jet Fuel, and they have a correlation equal to +100%, the optimal hedge ratio to determine the Heating Oil volume would be:
1. 100% of the Jet Fuel volume
2. 200% of the Jet Fuel volume
3. 150% of the Jet Fuel volume
4. 50% of the Jet Fuel volume

If you buy a straddle with two options with similar deltas in absolute terms, your resulting 'Greeks' are:
1. Delta positive, Vega negative
2. Delta negative, Vega negative
3. Delta neutral, Vega neutral
4. Delta neutral, Vega positive

Which instruments have the highest exposure to changes in implied volatility (eg higher Vega)?
1. OTM options
2. ITM options
3. ATM options
4. Forwards

Which of the following models is the one most commonly used to price options on forward contracts?
1. Black-Scholes
2. Heston's stochastic volatility
3. Black' 76
4. Black' 87

Undiversified VaR is calculated on the assumption that:
1. the correlation between all assets is 0
2. the correlation between all assets is 1
3. the correlation between all assets is 0.5
4. the correlation between all assets is -1

The writer of an option is:
1. Long gamma
2. Short gamma
3. Sometimes long and sometimes short gamma
4. It depends on the month of the year