1. If is the characteristic function for where S is the stock price such that , where and is the probability density function for K, then the expression for risk neutral probability that a call option finishes in the money :

1. 
2. 
3. 
4. None of the above

2.One of the most widely used generalized quadratic functions to model implied volatility as a function of moneyness, K and maturity, T is:

1. 
2. 
3. 
4. None of the above

3. The chief advantage of Heston (1993) stochastic volatility model is/are:

1. It yields a closed form solution and can take into account the correlation between asset price and asset volatility;
2. It models the variance in a GARCH framework;
3. It yields a closed form solution and models variance in a GARCH framework;
4. It can model the autocorrelation of the asset returns;

4. If S is the asset price and B is the barrier, then in an adaptive mesh model (using trinomial tree) to price barrier options, the price increments are given by:

5. If the determinant of a correlation matrix is a negative number then the correlation matrix is nonsensical because:

1. All eigenvalues of the correlation matrix are negative;
2. the Cholesky matrix for the correlation matrix does not exist;
3. the correlation matrix cannot be inverted;
4. the correlation matrix is singular;

Answers:

1(b)
2(b)
3(a)
4(d)
5(b)

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