Ocassionally, the Winter Weather at Schweizer Alpen Skiing Doesn't Produce

Multiple Choice

Ocassionally, the winter weather at Schweizer Alpen Skiing doesn't produce enough snow for good skiing. Schweizer doesn't like to depend solely on the weather for cash flow. Schweizer has decided to hedge against the risk of a snowless winter by entering a contract with an insurance company that Schweizer will gross $150 million every winter. Thus, if Schweizer experiences a lousy winter, and doesn't reach $150 million, the insurance company will make up the difference. On the other hand, Schweizer will have to pay the insurance company any gross earnings above $150 million. Which derivative instrument does this scenario best represent?

A) Forward
B) Future
C) Swap
D) Option
E) Not a derivative