Hull: Fundamentals of Futures and Options Markets, Ninth Edition
Chapter 19: Volatility Smiles
Multiple Choice Test Bank
1. Which of the following is true of a volatility smile?
A. Implied volatility is on the horizontal axis and strike price is on the vertical axis
B. Historical volatility is on the horizontal axis and strike price is on the vertical axis
C. Implied volatility is on the vertical axis and strike price is on the horizontal axis
D. Historical volatility is on the vertical axis and strike price is on the horizontal axis
2. Which of the following is true?
A. Volatility smile for European puts is the same as for European calls
B. Volatility smile for European puts is the same as for American puts
C. Volatility smile for European calls is the same as for American calls
D. Volatility smile for American puts is the same as for American calls
3. Which of the following is true when the tails of a future foreign currency distribution are
compared with those of a lognormal distribution with the same mean and standard deviation?
A. The left tail and right tail are thinner
B. The left tail is thinner and the right tail is fatter
C. The right tail is thinner and the left tail is fatter
D. Both tails are fatter
4. Which of the following is true when the tails of a future stock price distribution are compared
with those of a lognormal distribution with the same mean and standard deviation?
A. The left tail and right tail are thinner
B. The left tail is thinner and the right tail is fatter
C. The right tail is thinner and the left tail is fatter
D. Both tails are fatter
