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If a stock price follows a Markov process which of the following could be true
A. Whenever the stock price has gone up for four successive days it has a 70% chance
of going up on the fifth day.
B. Whenever the stock price has gone up for four successive days there is almost certain
to be a correction on the fifth day.
C. The way the stock price moves on a day is unaffected by how it moved on the
previous four days.
D. Bad years for stock price returns are usually followed by good years.
Which of the following is true of Creditmetrics when it is used to calculate credit VaR
A. Creditmetrics takes defaults but not downgrades into account
B. Creditmetrics takes downgrades but not defaults into account
C. Creditmetrics considers neither defaults nor downgrades
D. Creditmetrics considers both defaults and downgrades
Which of the following creates a bear spread?
A. Buy a low strike price put and sell a high strike price put
B. Buy a high strike price put and sell a low strike price put
C. Buy a high strike price call and sell a low strike price put
D. Buy a high strike price put and sell a low strike price call
An employer has promised that it will grant employees three year options in one year€s
time and that the options will be at the money at the time they are granted. What
describes these options?
A. Chooser options
B. Forward start options
C. Compound options
D. Shout options
Which of the following is correct?
A. A diagonal spread can be created by buying a call and selling a put when the strike
prices are the same and the times to maturity are different
B. A diagonal spread can be created by buying a put and selling a call when the strike
prices are the same and the times to maturity are different
C. A diagonal spread can be created by buying a call and selling a call when the strike
prices are different and the times to maturity are different
D. A diagonal spread can be created by buying a call and selling a call when the strike
prices are the same and the times to maturity are different
Which of the following cannot be estimated from a single binomial tree?
A. delta
B. gamma
C. theta
D. vega
Which of the following is true?
A. The implicit finite difference method relates prices at one node to three prices at
nodes at a later time
B. The implicit finite difference method relates prices at one node to three prices at
nodes at an earlier time
C. The implicit finite difference method relates prices at one node to three prices at
nodes at the same time
D. None of the above
The yield curve is flat at 6% per annum. What is the value of an FRA where the holder
receives interest at the rate of 8% per annum for a six-month period on a principal of
$1,000 starting in two years? All rates are compounded semiannually.
A. $9.12
B. $9.02
C. $8.88
D. $8.63
Which of the following ensures that managers are rewarded only when a company
performs better than its competitors?
A. A constant strike price for executive stock options
B. A strike price that increases with time
C. A strike price that changes in line with an index of stock prices
D. A strike price that is tied to reported profit
Since the 2008 credit crisis
A. LIBOR has replaced OIS as the discount rate for non-collateralized swaps
B. OIS has replaced LIBOR as the discount rate for non-collateralized swaps
C. LIBOR has replaced OIS as the discount rate for collateralized swaps
D. OIS has replaced LIBOR as the discount rate for collateralized swaps
When the strike price increases with all else remaining the same, which of the following
is true?
A. Both calls and puts increase in value
B. Both calls and puts decrease in value
C. Calls increase in value while puts decrease in value
D. Puts increase in value while calls decrease in value
There are two types of regular options (calls and puts). How many types of compound
options are there?
A. Two
B. Four
C. Six
D. Eight
In a binomial tree created to value an option on a stock, the expected return on stock is
A. Zero
B. The return required by the market
C. The risk-free rate
D. It is impossible to know without more information
Which of the following is NOT true?
A. Management has an incentive to issue executive stock options after bad news
B. Management has an incentive to issue executive stock options before good news
C. Executive stock options encourage management to pursue strategies that are best for
the company in the long run
D. Management have an incentive to time the announcement of good news just before
they plan to exercise their stock options
