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A variable x starts at 10 and follows the generalized Wiener process
dx = a dt + b dz
where time is measured in years. If a = 3 and =4 what is the standard deviation of the
value in 4 years?
A. 4
B. 8
C. 12
D. 16
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
The price of a stock on February 1 is $124. A trader sells 200 put options on the stock
with a strike price of $120 when the option price is $5. The options are exercised when
the stock price is $110. The trader€s net profit or loss is
A. Gain of $1,000
B. Loss of $2,000
C. Loss of $2,800
D. Loss of $1,000
Which of the following is true?
A. Risk neutral default probabilities are usually much lower than real world default
probabilities
B. Risk neutral default probabilities are usually much higher than real world default
probabilities
C. Risk neutral and real world probabilities must be close to each other if there are to be
no arbitrage opportunities
D. Risk-neutral default probabilities cannot be calculated from CDS spreads
What is the method of testing how often a VaR with a certain confidence level was
exceeded in the past called?
A. Stress testing
B. Back testing
C. EWMA
D. The model-building approach
Interest rates are zero. A European call with a strike price of $50 and a maturity of one
year is worth $6. A European put with a strike price of $50 and a maturity of one year is
worth $7. The current stock price is $49. Which of the following is true?
A. The call price is high relative to the put price
B. The put price is high relative to the call price
C. Both the call and put must be mispriced
D. None of the above
An investor has exchange-traded put options to sell 100 shares for $20. There is a 2 for
1 stock split. Which of the following is the position of the investor after the stock split?
A. Put options to sell 100 shares for $20
B. Put options to sell 100 shares for $10
C. Put options to sell 200 shares for $10
D. Put options to sell 200 shares for $20
What is a description of the trading strategy where an investor sells a 3-month call
option and buys a one-year call option, where both options have a strike price of $100
and the underlying stock price is $75?
A. Neutral Calendar Spread
B. Bullish Calendar Spread
C. Bearish Calendar Spread
D. None of the above
What is the number of companies underlying the iTraxx index?
A. 50
B. 75
C. 100
D. 125
A company enters into an interest rate swap where it is paying fixed and receiving
LIBOR. When interest rates increase, which of the following is true?
A. The value of the swap to the company increases
B. The value of the swap to the company decreases
C. The value of the swap can either increase or decrease
D. The value of the swap does not change providing the swap rate remains the same
The reference entity in a credit default swap is
A. The buyer of protection
B. The seller of protection
C. The company or country whose default is being insured against
D. None of the above
