XYZ Flashcards
Question: What is a protective put?
Answer: Purchase a put on an asset you own.
Question: What does a protective put do?
Answer: Locks in a minimum portfolio value.
Question: What is the purpose of a protective put?
Answer: Insuring against a fall in the value of the underlying.
Question: How is the cost of insurance determined for a protective put?
Answer: The put premium.
Question: Do insurance companies use derivatives?
Answer: Yes, to manage risk.
Question: What is a covered call?
Answer: Selling a call option on a stock you own.
Question: Why would you sell a covered call?
Answer: To create income on a stock that you don’t expect to rise in price.
Question: What is a straddle?
Answer: Buying a call option and a put option with the same strike price.
Question: What is a short straddle?
Answer: Selling a call option and a put option with the same strike price.
Question: What role do derivatives play in climate change?
Answer: Discovering prices for various commodities related to climate change.
Question: What are the three channels through which climate change can affect financial stability?
Answer: Physical risks, liability risks, and transition risks.
Question: Can derivative and insurance markets completely eliminate climate change risks?
Answer: No, they can only transfer the risks.
Question: What are KPI-linked bonds?
Answer: Bonds issued by transitioning companies with penalties for not achieving specified sustainability targets.
Question: How can high-risk investments in climate-friendly projects be structured?
Answer: Through products with tranches of risk similar to asset-backed securities.
Question: What were the main topics covered in the lecture?
Answer: Uses of derivatives for investors, climate change and insurance/derivatives, and climate change and financial stability.
