Question 1

The delta of a up-and-out call option with barrier $H$ lying above the strike $K$ is most likely to be negative when

Accepted Answer

A) The underlying stock price $S$
Is at or near
 $K$
) 
B) The underlying stock price $S$
Is close to and less than
 $H$
) 
C) The underlying stock price $S$
Is well below
 $K$
) 
D) The delta of a call cannot be negative. 
A) The underlying stock price $S$
Is at or near
 $K$
) 
B) The underlying stock price $S$
Is close to and less than
 $H$
) 
C) The underlying stock price $S$
Is well below
 $K$
) 
D) The delta of a call cannot be negative.

Question 2

If you buy a knock-out call option with barrier $H$ satisfying $H > K = S$ where $K$ and $S$ are the strike price and current price of the underlying,respectively,then your implied view of prices is that

Accepted Answer

A) Prices are going up to at least the level of the barrier. 
B) Prices are going up,but at most to the level of the barrier. 
C) Prices are moving down. 
D) Prices may move up to the level of the barrier before moving down. 
A) Prices are going up to at least the level of the barrier. 
B) Prices are going up,but at most to the level of the barrier. 
C) Prices are moving down. 
D) Prices may move up to the level of the barrier before moving down.

Question 3

Which of the following statements about backdating is most valid?

Accepted Answer

A) A backdated option is one that is issued prior to today. 
B) Backdating usually involves the issuance of an option with a prior issue date and lower strike than today's price. 
C) Backdating usually involves the ex-post issuance of an out-of-the-money option. 
D) A backdated option is exactly the same as a fixed-strike lookback option. 
A) A backdated option is one that is issued prior to today. 
B) Backdating usually involves the issuance of an option with a prior issue date and lower strike than today's price. 
C) Backdating usually involves the ex-post issuance of an out-of-the-money option. 
D) A backdated option is exactly the same as a fixed-strike lookback option.

Question 4

Consider a floating-strike lookback put option written on a stock.Let $S ^ { \mathrm { max } }$ and $S ^ { \mathrm { min } }$ denote the maximum and minimum prices of the stock over the option's life.Then,the payoff to the option holder is given by $\max \{ X - Y , 0 \}$ ,where

Accepted Answer

A)  $X = S ^ { \max }$
And
 $Y = K$
,the given strike price of the option. 
B)  $X = K$
And
 $Y = S ^ { \text {min } }$
) 
C)  $X = S ^ { \max }$
And
 $Y = S _ { T }$
,the price of the underlying at maturity. 
D)  $X = S _ { T }$
And
 $Y = S ^ { \text {min } }$
) 
A)  $X = S ^ { \max }$
And
 $Y = K$
,the given strike price of the option. 
B)  $X = K$
And
 $Y = S ^ { \text {min } }$
) 
C)  $X = S ^ { \max }$
And
 $Y = S _ { T }$
,the price of the underlying at maturity. 
D)  $X = S _ { T }$
And
 $Y = S ^ { \text {min } }$
)

Question 5

The most valid relationship between the values of European calls ( $C _ { E }$ ),American calls ( $C _ { A }$ ),shout call options ( $C _ { S }$ ),and lookback calls ( $C _ { L }$ )is as follows:

Accepted Answer

A)  $C _ { A } \leq C _ { S } \leq C _ { L }$ 
B)  $C _ { E } \leq C _ { L } \leq C _ { S }$ 
C)  $C _ { S } \leq C _ {E } \leq C _ { A }$ 
D)  $C _ { A } \leq C _ { L } \leq C _ { S }$ 
A)  $C _ { A } \leq C _ { S } \leq C _ { L }$ 
B)  $C _ { E } \leq C _ { L } \leq C _ { S }$ 
C)  $C _ { S } \leq C _ {E } \leq C _ { A }$ 
D)  $C _ { A } \leq C _ { L } \leq C _ { S }$

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) Asian calls are always worth less than the corresponding vanilla calls. 
B) Asian puts are always worth less than the corresponding vanilla puts. 
C) Arithmetic-average Asian calls are always worth less than the corresponding vanilla calls but geometric-average Asian calls may be worth more. 
D) At low volatilities,all Asian options are worth less than the corresponding vanilla options,but at high volatilities they may be worth more. 
A) Asian calls are always worth less than the corresponding vanilla calls. 
B) Asian puts are always worth less than the corresponding vanilla puts. 
C) Arithmetic-average Asian calls are always worth less than the corresponding vanilla calls but geometric-average Asian calls may be worth more. 
D) At low volatilities,all Asian options are worth less than the corresponding vanilla options,but at high volatilities they may be worth more.

Question 7

In a barrier option,

Accepted Answer

A) Price paths are bounced off the barrier. 
B) Option payoffs are conditional on whether the underlying breached the barrier during the option's life. 
C) Option payoffs are conditional on when the underlying breached the barrier during the option's life. 
D) Conditional on the barrier being breached during the option's life,option payoffs differ based on how many times the barrier was breached. 
A) Price paths are bounced off the barrier. 
B) Option payoffs are conditional on whether the underlying breached the barrier during the option's life. 
C) Option payoffs are conditional on when the underlying breached the barrier during the option's life. 
D) Conditional on the barrier being breached during the option's life,option payoffs differ based on how many times the barrier was breached.

Question 8

A shout option

Accepted Answer

A) Is like a barrier option but in which the option holder gets to choose a barrier at any point. 
B) Is effectively an American option which can be exercised at any time before maturity. 
C) Is an option where you can lock-in "early-exercise" profits at any one point and receive,at maturity,the maximum of these locked-in profits or the moneyness of the option at maturity. 
D) Is a Bermudan option with only one specified early-exercise date,that is,it can be exercised early on that given date or at maturity. 
A) Is like a barrier option but in which the option holder gets to choose a barrier at any point. 
B) Is effectively an American option which can be exercised at any time before maturity. 
C) Is an option where you can lock-in "early-exercise" profits at any one point and receive,at maturity,the maximum of these locked-in profits or the moneyness of the option at maturity. 
D) Is a Bermudan option with only one specified early-exercise date,that is,it can be exercised early on that given date or at maturity.

Question 9

In the 1990s,a number of companies which had experienced sharp stock price declines,"repriced" previously-awarded employee stock options.Repricing consisted of resetting the options' strike prices to the current stock price (so as to bring them closer to the money).Suppose a company awards at-the-money stock options to its employees and decides it will reprice them if the stock price falls 50% from the initial award date.Then,the employee stock option is equivalent to a portfolio of

Accepted Answer

A) A vanilla call and a forward-starting call. 
B) A knock-out and a knock-in barrier call option. 
C) A knock-out call and a forward-strarting call. 
D) A cliquet. 
A) A vanilla call and a forward-starting call. 
B) A knock-out and a knock-in barrier call option. 
C) A knock-out call and a forward-strarting call. 
D) A cliquet.

Question 10

A number of companies were accused of "backdating" executive stock options in the 2000s.Backdating is the procedure by which companies chose the date on which the stock was was most favorable (i.e. ,at its lowest)to act as the putative start date of the option grant.By permitting backdating,companies were essentially giving their executives a form of a

Accepted Answer

A) Cliquet option. 
B) Shout option. 
C) Floating-strike lookback option. 
D) Fixed-strike lookback option. 
A) Cliquet option. 
B) Shout option. 
C) Floating-strike lookback option. 
D) Fixed-strike lookback option.

Question 11

A cliquet is analogous to

Accepted Answer

A) A portfolio of vanilla options,all at-the-money today,and expiring on the reset dates of the cliquet. 
B) A portfolio of digital options,with one option coming to life at each reset date and expiring at the next reset date. 
C) A portfolio of forward-starts,with one option coming to life at each reset date and expiring at the next reset date. 
D) A portfolio of exchange options,with one option coming to life at each reset date and expiring at the next reset date. 
A) A portfolio of vanilla options,all at-the-money today,and expiring on the reset dates of the cliquet. 
B) A portfolio of digital options,with one option coming to life at each reset date and expiring at the next reset date. 
C) A portfolio of forward-starts,with one option coming to life at each reset date and expiring at the next reset date. 
D) A portfolio of exchange options,with one option coming to life at each reset date and expiring at the next reset date.

Question 12

A portfolio comprising an up-and-out put and an up-and-in put is equivalent to

Accepted Answer

A) A up-and-out call and a up-and-in call. 
B) A vanilla call. 
C) A down-and-out put and a down-and-in put. 
D) A vanilla put 
A) A up-and-out call and a up-and-in call. 
B) A vanilla call. 
C) A down-and-out put and a down-and-in put. 
D) A vanilla put

Question 13

Consider a down-and-out call and a down-and-in call with a current stock price $S$ ,barrier $H  H$ .When does the knock-out option increase in price and the knock-in decrease in price?

Accepted Answer

A) When the stock price increases. 
B) When the volatility increases. 
C) When the barrier increases. 
D) When the strike increases. 
A) When the stock price increases. 
B) When the volatility increases. 
C) When the barrier increases. 
D) When the strike increases.

Exam 19: Exotic Options II: Path-Dependent Options

The delta of a up-and-out call option with barrier HHH lying above the strike KKK is most likely to be negative when

If you buy a knock-out call option with barrier HHH satisfying H>K=SH > K = SH>K=S where KKK and SSS are the strike price and current price of the underlying,respectively,then your implied view of prices is that

Which of the following statements about backdating is most valid?

The most valid relationship between the values of European calls ( CEC _ { E }CE​ ),American calls ( CAC _ { A }CA​ ),shout call options ( CSC _ { S }CS​ ),and lookback calls ( CLC _ { L }CL​ )is as follows:

Which of the following statements is FALSE?

In a barrier option,

A shout option

A cliquet is analogous to

A portfolio comprising an up-and-out put and an up-and-in put is equivalent to

Consider a down-and-out call and a down-and-in call with a current stock price SSS ,barrier H<SH < SH<S ,and strike K>HK > HK>H .When does the knock-out option increase in price and the knock-in decrease in price?

Overview

Futures Markets

Pricing Forwards and Futures I

Pricing Forwards Futures II

Hedging With Futures Forwards

Interest-Rate Forwards Futures

Options Markets

Options: Payoffs Trading Strategies

No-Arbitrage Restrictions

Early-Exercise/Put-Call Parity

Option Pricing: An Introduction

Binomial Option Pricing

Implementing the Binomial Model

The Black-Scholes Model

Mathematics of Black-Scholes

Beyond Black-Scholes

The Option Greeks

Path-Independent Exotic Options

Value at Risk

Swaps and Floating Rate Products

Equity Swaps

Currency and Commodity Swaps

Term Structure of Interest Rates: Concepts

Estimating the Yield Curve

Modeling Term Structure Movements

Factor Models of the Term Structure

The Heath-Jarrow-Morton Hjmand Libor Market Model LMM

Credit Derivative Products

Structural Models of Default Risk

Reduced-Form Models of Default Risk

Modeling Correlated Default

Filters

The delta of a up-and-out call option with barrier $H$ lying above the strike $K$ is most likely to be negative when

If you buy a knock-out call option with barrier $H$ satisfying $H > K = S$ where $K$ and $S$ are the strike price and current price of the underlying,respectively,then your implied view of prices is that

The most valid relationship between the values of European calls ( $C _ { E }$ ),American calls ( $C _ { A }$ ),shout call options ( $C _ { S }$ ),and lookback calls ( $C _ { L }$ )is as follows:

Consider a down-and-out call and a down-and-in call with a current stock price $S$ ,barrier $H < S$ ,and strike $K > H$ .When does the knock-out option increase in price and the knock-in decrease in price?