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Hull: Options, Futures, and Other Derivatives, Ninth Edition
Chapter 19: The Greek Letters
Multiple Choice Test Bank: Questions with Answers
1. A call option on a stock has a delta of 0.3. A trader has sold 1,000 options. What position should
the trader take to hedge the position?
A. Sell 300 shares
B. Buy 300 shares
C. Sell 700 shares
D. Buy 700 shares
Answer: B
When the stock price increases by a small amount, the option price increases by 30% of this
amount. The trader therefore has a hedged position if he or she buys 300 shares. For small
changes the gain or loss on the stock position is equal and opposite to the loss or gain on the
option position.
2. What does theta measure?
A. The rate of change of delta with the asset price
B. The rate of change of the portfolio value with the passage of time
C. The sensitivity of a portfolio value to interest rate changes
D. None of the above
Answer: B
Theta measures the rate of change in the value of a portfolio with the passage of time.
3. What does gamma measure?
A. The rate of change of delta with the asset price
B. The rate of change of the portfolio value with the passage of time
C. The sensitivity of a portfolio value to interest rate changes
D. None of the above
Answer: A
Gamma measure the rate of change of delta with the asset price.
4. What does vega measure?
A. The rate of change of delta with the asset price
B. The rate of change of the portfolio value with the passage of time
C. The sensitivity of a portfolio value to interest rate changes
D. None of the above
Answer: D
Vega measures the rate of change of the value of the portfolio value with volatility.
5. What does rho measure?
A. The rate of change of delta with the asset price
B. The rate of change of the portfolio value with the passage of time
C. The sensitivity of a portfolio value to interest rate changes
D. None of the above
Answer: C
Rho measures the rate of change of the value of the portfolio with interest rates. (Usually a
parallel shift in interest rates is considered.)
6. Which of the following is true?
A. The delta of a European put equals minus the delta of a European call
B. The delta of a European put equals the delta of a European call
C. The gamma of a European put equals minus the gamma of a European call
D. The gamma of a European put equals the gamma of a European call
Answer: D
The delta of a put on a non-dividend-paying stock equals the delta of the call minus one. The
