Question 1

The time to expiration of an option is based on a 360-day year.

Accepted Answer

A) True 
 B)False  False

Question 2

The following information is given about options on the stock of a certain company.
SS1U1B10S1U1B0 = 23 X = 20
rS1U1B1cS1U1B0 = 0.09 T = 0.5
F1F1F1S1F1F1F10S1U1P12 S1S1P0= 0.15
No dividends are expected.
Use this information to answer questions
-The price of a put on the stock is: (Due to differences in rounding your calculations may be slightly different."none of the above" should be selected only if your answer is different by more than 10 cents. )

Accepted Answer

A) 0.85 
B) 8.64 
C) 2.35 
D) 4.88 
E) none of the above 
A) 0.85 
B) 8.64 
C) 2.35 
D) 4.88 
E) none of the above A

Question 3

What is the reason for executing a gamma hedge?

Accepted Answer

A) the volatility can change 
B) the stock price can make a large move 
C) the stock price moves are too small for a delta hedge to work 
D) there is no true risk-free rate 
E) none of the above 
A) the volatility can change 
B) the stock price can make a large move 
C) the stock price moves are too small for a delta hedge to work 
D) there is no true risk-free rate 
E) none of the above B

Question 4

The Black-Scholes-Merton formula requires cumulative probabilities from the lognormal distribution.

Accepted Answer

A) True 
 B)False

Question 5

If the stock price is 44,the exercise price is 40,the put price is 1.54,and the Black-Scholes-Merton price using 0.28 as the volatility is 1.11,the implied volatility will be

Accepted Answer

A) higher than 0.28 
B) lower than 0.28 
C) 0.28 
D) lower than the risk-free rate 
E) none of the above 
A) higher than 0.28 
B) lower than 0.28 
C) 0.28 
D) lower than the risk-free rate 
E) none of the above

Question 6

The following information is given about options on the stock of a certain company.
SS1U1B10S1U1B0 = 23 X = 20
rS1U1B1cS1U1B0 = 0.09 T = 0.5
F1F1F1S1F1F1F10S1U1P12 S1S1P0= 0.15
No dividends are expected.
Use this information to answer questions
-The call's vega is: (Due to differences in rounding your calculations may be slightly different."none of the above" should be selected only if your answer is different by more than 0.05. )

Accepted Answer

A) -3.02 
B) 0.046 
C) -0.792 
D) 4.67 
E) none of the above 
A) -3.02 
B) 0.046 
C) -0.792 
D) 4.67 
E) none of the above

Question 7

The relationship between the option price and the exercise price is called

Accepted Answer

A) the gamma 
B) the vega 
C) the omega 
D) the zeta 
E) none of the above 
A) the gamma 
B) the vega 
C) the omega 
D) the zeta 
E) none of the above

Question 8

The historical volatility is the same value as the implied volatility.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not correct about a call's gamma?

Accepted Answer

A) it is the same as a put's gamma 
B) it is large when the call is at-the-money 
C) it can be viewed as a measure of the risk of the delta 
D) it is a source of risk that can be hedged only by using another option 
E) none of the above 
A) it is the same as a put's gamma 
B) it is large when the call is at-the-money 
C) it can be viewed as a measure of the risk of the delta 
D) it is a source of risk that can be hedged only by using another option 
E) none of the above

Question 10

Which of the following statements is incorrect about the historical volatility?

Accepted Answer

A) if used in the Black-Scholes-Merton model,it gives the current market price 
B) it is based on the volatility of the log return on the stock 
C) it requires a sample of recent returns 
D) it should be converted to an annualized volatility 
E) none of the above 
A) if used in the Black-Scholes-Merton model,it gives the current market price 
B) it is based on the volatility of the log return on the stock 
C) it requires a sample of recent returns 
D) it should be converted to an annualized volatility 
E) none of the above

Question 11

The Black-Scholes-Merton model is the discrete time limit to the binomial model.

Accepted Answer

A) True 
 B)False

Question 12

What happens when the volatility is zero in the Black-Scholes-Merton model?

Accepted Answer

A) the option price converges to either zero or the lower bound 
B) the option price converges to the intrinsic value 
C) the option automatically expires out of the money 
D) the gamma and delta converge 
E) none of the above 
A) the option price converges to either zero or the lower bound 
B) the option price converges to the intrinsic value 
C) the option automatically expires out of the money 
D) the gamma and delta converge 
E) none of the above

Question 13

Which of the following statements about the Black-Scholes-Merton model is not true?

Accepted Answer

A) decreasing the volatility lowers the call price 
B) the expected stock price plays a role in the model 
C) the risk-free rate is continuously compounded 
D) the model is consistent with put-call parity 
E) none of the above 
A) decreasing the volatility lowers the call price 
B) the expected stock price plays a role in the model 
C) the risk-free rate is continuously compounded 
D) the model is consistent with put-call parity 
E) none of the above

Question 14

The binomial model always gives the same option price as the Black-Scholes-Merton model.

Accepted Answer

A) True 
 B)False

Question 15

In the Black-Scholes-Merton model,stock prices are assumed to behave randomly.

Accepted Answer

A) True 
 B)False

Question 16

The binomial price will theoretically equal the Black-Scholes-Merton price under which of the following conditions?

Accepted Answer

A) when the number of time periods is large 
B) when the option is at-the-money 
C) when the option is in-the-money 
D) when the option is out-of-the-money 
E) none of the above 
A) when the number of time periods is large 
B) when the option is at-the-money 
C) when the option is in-the-money 
D) when the option is out-of-the-money 
E) none of the above

Question 17

Vega captures the combined effects of time decay and volatility.

Accepted Answer

A) True 
 B)False

Question 18

The option's rate of time value decay is represented by its theta.

Accepted Answer

A) True 
 B)False

Question 19

In the term structure of volatility,the forward volatility is the expected future volatility.

Accepted Answer

A) True 
 B)False

Question 20

The option's delta is approximately the change in the option price for a change in the stock price.

Accepted Answer

A) True 
 B)False

The time to expiration of an option is based on a 360-day year.

What is the reason for executing a gamma hedge?

The Black-Scholes-Merton formula requires cumulative probabilities from the lognormal distribution.

If the stock price is 44,the exercise price is 40,the put price is 1.54,and the Black-Scholes-Merton price using 0.28 as the volatility is 1.11,the implied volatility will be

The relationship between the option price and the exercise price is called

The historical volatility is the same value as the implied volatility.

Which of the following is not correct about a call's gamma?

Which of the following statements is incorrect about the historical volatility?

The Black-Scholes-Merton model is the discrete time limit to the binomial model.

What happens when the volatility is zero in the Black-Scholes-Merton model?

Which of the following statements about the Black-Scholes-Merton model is not true?

The binomial model always gives the same option price as the Black-Scholes-Merton model.

In the Black-Scholes-Merton model,stock prices are assumed to behave randomly.

The binomial price will theoretically equal the Black-Scholes-Merton price under which of the following conditions?

Vega captures the combined effects of time decay and volatility.

The option's rate of time value decay is represented by its theta.

In the term structure of volatility,the forward volatility is the expected future volatility.

The option's delta is approximately the change in the option price for a change in the stock price.

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: the Binomial Model

Basic Option Strategies

Advanced Option Strategies

The Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures, and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters

Exam 5: Option Pricing Models: the Black-Scholes-Merton Model

The time to expiration of an option is based on a 360-day year.

What is the reason for executing a gamma hedge?

The Black-Scholes-Merton formula requires cumulative probabilities from the lognormal distribution.

If the stock price is 44,the exercise price is 40,the put price is 1.54,and the Black-Scholes-Merton price using 0.28 as the volatility is 1.11,the implied volatility will be

The relationship between the option price and the exercise price is called

The historical volatility is the same value as the implied volatility.

Which of the following is not correct about a call's gamma?

Which of the following statements is incorrect about the historical volatility?

The Black-Scholes-Merton model is the discrete time limit to the binomial model.

What happens when the volatility is zero in the Black-Scholes-Merton model?

Which of the following statements about the Black-Scholes-Merton model is not true?

The binomial model always gives the same option price as the Black-Scholes-Merton model.

In the Black-Scholes-Merton model,stock prices are assumed to behave randomly.

The binomial price will theoretically equal the Black-Scholes-Merton price under which of the following conditions?

Vega captures the combined effects of time decay and volatility.

The option's rate of time value decay is represented by its theta.

In the term structure of volatility,the forward volatility is the expected future volatility.

The option's delta is approximately the change in the option price for a change in the stock price.

Introduction

Structure of Options Markets

Principles of Option Pricing

Option Pricing Models: the Binomial Model

Basic Option Strategies

Advanced Option Strategies

The Structure of Forward and Futures Markets

Principles of Pricing Forwards, Futures, and Options on Futures

Futures Arbitrage Strategies

Forward and Futures Hedging, Spread, and Target Strategies

Swaps

Interest Rate Forwards and Options

Advanced Derivatives and Strategies

Financial Risk Management Techniques and Applications

Managing Risk in an Organization

Filters