Questions and Answers of Financial Modelling In Commodity Market

When commodity spot return distribution exhibits excess kurtosis and nonzero skewness, the model used for spot prices is:(a) Jump-diffusion model;(b) Mean-reverting model;(c) Geometric Brownian
Which of the following statements is true:(a) Many commodity markets contain a strong seasonal component either at the price level, or in volatility.(b) In commodity markets the seasonal component is
What is the halftime of a mean-reverting process?(a) It is the time taken for the price to revert to zero.(b) It is the time taken for the price to revert half way to its long-term level from
In the two factor model of Schwartz [60] as the time to maturity approaches large values, the volatility of futures converges to:(a) zero.(b) infinity.(c) a fixed value depending on model
Which of the following statements are true?Statement I Under the true distribution the forward price and the expected spot price differ only on the risk premium.Statement II The forward price can be
In the Schwartz and Smith [59] model the forward curve at any time in the risk-neutral world depends on:(a) The short-term deviation in prices and the equilibrium price level;(b) The short-term
The Schwartz and Smith [59] model is calibrated by using:(a) The call option prices;(b) The spot prices;(c) The swap prices;(d) The futures prices.
What are the two components of the futures volatility function in Fanelli et al.[32] model?(a) A seasonal component and a path-dependent component;(b) A short-term component and a path-dependent
Assume that the actual underlying price is $25, its volatility is 30% and drift equal to 4%. Furthermore, the annual risk-free interest rate in the market is 3%. Price a European call option with
Apply the put-call parity relationship to obtain the European put price corresponding to the call price of Exercise 1.
Consider an underlying commodity with spot price $45 and expected return of 6%. Use the Excel Solver to find the implied volatility of an European call option with maturity one year and strike price
Consider two trading dates t = 0;1 and a commodity with price at time 0 equal to $50. Given the interest rate is 3%, the strike price is $50 and u=1:1 and d =0:97, determine the European call and put
Consider three trading dates t = 0;1;2 and a commodity with price at time 0 equal to $45. Given the interest rate is 3%, the strike price is $50 and u = 1:1 and d = 0:97, determine the European call
Consider three trading dates t = 0;1;2 and a commodity with price at time 0 equal to $50. Given the interest rate is 3%, the strike price is $50 and u = 1:1 and d = 0:97, determine the American call
Consider a European call option with maturity 6 months and an underlying commodity with price at time 0 equal to $45 and volatility 20%. Given the interest rate is 3%, the strike price is $50 and u =
Consider a European call option with maturity 6 months and an underlying commodity with price at time 0 equal to $100, volatility 30% and expected return 5%. Given the interest rate is 3%, the strike
On January 15, the refiner X estimates it will need to purchase 10,000 barrels of crude oil on May 20.X decides to hedge price risk using a June NYMEX futures contracts. On January 15, the June
The spot price of gasoline is USD 0.60/gal. The cost of financing for the purchase of the contract is USD 0.20/gal per month; the cost of storage for the physical commodity is USD 0.15/gal per month.
On June 15, the spot price of crude oil is USD 97.The monthly storage cost id USD 0.60/bbl, and the annual risk-free interest rate is 2%. If the crude oil can be stored for six months but cannot be
Tom holds the following two option contracts on Brent futures: Short one put option with strike price of USD 100.00; Long one call option with strike price of USD 105.00.If the options have the
Clark buys a monthly 100 MW on-peak power call option for a month that has 20 business days4. The strike price is USD 70/MWh and the premium is USD 5/MWh. Clark exercises the call option in a month
Which of the following statements currently explains a key characteristic of a bear spread option structure?a. The structure is created by a short call with strike price K2 and a long call with
Bird Airways would use commodity swaps to protect against rising jet fuel prices. Which of the following statement(s) about the use of commodity swaps is/are correct?(a) Bird Airways will sell a