Which of the following is NOT traded by the CBOE?
A. Weeklys
B. Monthlys
C. Binary options
D. DOOM options
Which of the following causes a volatility smile that is a “frown”?
A. There is a small probability of a large stock price decrease in one week
B. There is a small probability of a large stock price increase in one week
C. The outcome of a lawsuit (roughly equal chance of being favorable or unfavorable)
will create a large movement up or down in one week
D. None of the above
When dividends increase 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
Which of the following is true
A. GARCH models incorporate mean reversion; EWMA models do not
B. EWMA models incorporate mean reversion; GARCH models do not
C. Both GARCH and EWMA models incorporate mean reversion
D. Neither GARCH nor EWMA models incorporate mean reversion
Which of the following is true for American options?
A. Put-call parity provides an upper and a lower bound for the difference between call
and put prices
B. Put call parity provides an upper bound but no lower bound for the difference
between call and put prices
C. Put call parity provides a lower bound but no upper bound for the difference between
call and put prices
D. There are no put-call parity results
Suppose that OIS rates of all maturities are 6% per annum, continuously compounded.
The one-year LIBOR rate is 6.4%, annually compounded and the two-year swap rate
for a swap where payments are exchanged annually is 6.8%, annually compounded.
Which of the following is closest to the LIBOR forward rate for the second year when
OIS discounting is used and the rate is expressed with annual compounding?
A. 7.199%
B. 7.221%
C. 7.223%
D. 7.225%
The current price of a non-dividend paying stock is $30. Use a two-step tree to value a
European call option on the stock with a strike price of $32 that expires in 6 months.
Each step is 3 months, the risk free rate is 8% per annum with continuous
compounding. What is the option price when u = 1.1 and d = 0.9?
A. $1.29
B. $1.49
C. $1.69
D. $1.89
The current price of a non-dividend-paying stock is $30. Over the next six months it is
expected to rise to $36 or fall to $26. Assume the risk-free rate is zero. What is the
risk-neutral probability of that the stock price will be $36?
A. 0.6
B. 0.5
C. 0.4
D. 0.3
Which of the following are true?
A. Futures options are usually European
B. Futures options are usually American
C. Both American and European futures options trade actively in exchanges
D. Both American and European futures options trade actively in the OTC market
What is the number of trading days in a year usually assumed for equities?
A. 365
B. 252
C. 262
D. 272
Which of the following is true for an interest rate swap?
A. A swap is usually worth close to zero when it is first negotiated
B. Each forward rate agreement underlying a swap is worth close to zero when the
swap is first entered into
C. Comparative advantage is a valid reason for entering into the swap
D. None of the above
A company knows it will have to pay a certain amount of a foreign currency to one of
its suppliers in the future. Which of the following is true
A. A forward contract can be used to lock in the exchange rate
B. A forward contract will always give a better outcome than an option
C. An option will always give a better outcome than a forward contract
D. An option can be used to lock in the exchange rate
Which of the following is assumed by the Black-Scholes-Merton model?
A. The return from the stock in a short period of time is lognormal
B. The stock price at a future time is lognormal
C. The stock price at a future time is normal
D. None of the above
In the U.S. what is the longest maturity for 3-month Eurodollar futures contracts?
A: 2 years
B: 5 years
C: 10 years
D: 20 years