If i remember option are like ITM/OTM put option on refinery and ITM/OTM put option on producer, I choose ITM put option on oil producer.I think there was a question on wrong-way risk and exposure. You want to do somethgin with an option on oil and which of the below makes the wrong way risk exposure the highest:
a. sell option to an oil refinery
b. buy option to an oil refinery
c. sell option to oil producer
d. buy option to oil producer
two of them is flat out wrong I thought -- to have exposure you need to buy but couldnt see difference b/w refinery and producer. I picked refinery...
I think I picked the same one, ITM put means oil price goes down, in this case, the ability of oil producer to payoff the put will decrease as well, thus generating the WWR, not sure about oil refiner or oil producer, thoughIf i remember option are like ITM/OTM put option on refinery and ITM/OTM put option on producer, I choose ITM put option on oil producer.
I choose buy OTM put. If Price get down, put is more valuable but the Counterpart become weaker ...If i remember option are like ITM/OTM put option on refinery and ITM/OTM put option on producer, I choose ITM put option on oil producer.
did you mean ITM put with oil producer here? I thought this is the definition of WWR, your payoff increases, but the couterparty becomes weaker, hence affecting the true profitIf Price get down, put is more valuable but the Counterpart become weaker ...
Yes, but this definition works with OTM and ITM Put. If Price get down enouth, your OTM put become ITM, right ? I select OTM for sure, I think with Producer, I don t not if it is correctdid you mean ITM put with oil producer here? I thought this is the definition of WWR, your payoff increases, but the couterparty becomes weaker, hence affecting the true profit
I think you are probably right with the ITM, the WWR is biggerYes, but this definition works with OTM and ITM Put. If Price get down enouth, your OTM put become ITM, right ? I select OTM for sure, I think with Producer, I don t not if it is correct
Then, I am confused, I thought OTM or ITM represented the market condition to decide the payoffYes, but this definition works with OTM and ITM Put. If Price get down enouth, your OTM put become ITM, right ? I select OTM for sure, I think with Producer, I don t not if it is correct
Then I might be wrongOfficial reading : "An out the money put option will have more wrong way risk thant an in-the-money one"...
I come back if I find something on refinery/producer.
Actually this is right OTM put are more WWR then ITM, just checkedOfficial reading : "An out the money put option will have more wrong way risk thant an in-the-money one"...
I come back if I find something on refinery/producer.
Actually this is right OTM put are more WWR then ITM, just checked
it is clear...however, regarding the formulation of the question and WWR, I suppose that it was just a matte of wordingIf the oil price falls, the oil producer makes less profit, while the oil refinery makes more profit because oil is an input factor for them.
Do you guys remember a question on the Vasicek model?
I used to work in interest-rates years ago so i didn't review the models and now im not sure i b0mbed this one. I selected D, which said that the further away the short-rate is from the long term, the greater the next time-step movement will be (only cuz I recall Vasicek has mean-reversion).
However C could also have been correct (something along the side the user had to choose a level of risk ...as Vacisek is not an arbitrge-free model!)
My answer chosen was OTM with oil producer. The reasoning is such OTM put, means that we are betting on oil price go down, but our counterparty's financial and credit position is directly related to the growth of oil prices. So in case of huge price drop, we would be elegible to earn huge profits, but our counterparty might be bunkrupt by that time. Oil refinery as pointed above, benefits from price drop, so no WRR here.If i remember option are like ITM/OTM put option on refinery and ITM/OTM put option on producer, I choose ITM put option on oil producer.
IMHO, as a rule of thumb, I never change my answer in the bubble sheet. The first selected is my final. Changing answers, esp at the end will contribute to increase of exam stress, and you're more likely to commit Type I (reject the correct asnwer) /II (accept the wrong one) errors.I cannot tell, mine depends on the questions that they take out(sampling questions). I messed up quite a few where i did not stick with my first instinct and changed answers in the last 10 min, which i know i lost 5 points. I was good at eliminating to two choices but I chose lot of wrong options at the end. Hoping a little luck comes my way. Part I i felt even worse but came back with 2212 quartiles. This time may not be enough as the competition is higher.