Risk Latte - Quiz#4

a) The change in Vega when the volatility of the underlying goes higher or lower;
b) The change in price when the volatility of the underlying goes higher or lower;
c) The change in delta when the volatility of the underlying goes higher or lower;
d) The change in gamma when the volatility of the underlying goes higher or lower;

2) In a barrier option, as volatility of the underlying increase:

a) The option shortens in duration, and the strike affects the Greeks more;
b) The option lengthens in duration and the barrier affects the Greeks more;
c) The option shortens in duration and the barrier affects the Greeks more;
d) The option lengthens in duration and the strike affects the Greeks more;

3) Other conditions remaining the same, time affects the knock-out and knock-in option in the following way:

a) Both decreases in value as time passes at the same rate;
b) Both increases in value as time passes at different rate;
c) The Knock-out option looses its value while the Knock-in option gains value;
d) The Knock-out opotion looses it value faster rate than the Knock-in option;

4) Comparing the Vega of a Knock-in or Knock-out option over spot is similar to:

a) Butterfly with Vega neutral amounts;
b) Risk Reversal with ratio amounts;
c) Calendar Spreads with ratio amounts;
d) Call Spreads with equal amounts;

5) With higher volatility, an American One-touch options react as follows:

a) Gamma increases as Volatility goes higher;
b) Price decreases as Volatility goes higher;
c) Vega decreases as Volatility goes higher;
d) None of the above.

6) Volga can be traded in the market through:

a) Butterflies;
b) Barrier options;
c) Binary Options;
d) All of the above.

7) A long weighted Vega and short un-weighted Vega portfolio might represent the following:

a) Long shorter dated options and short longer dated options;
b) Short shorter dated options and long longer dated options;
c) Long both short dated and long dated options;
d) Short both short dated and long dated options;

8) Business Day Volatility essentially implies:

a) The volatility weighted over holidays, weekends and important events;
b) Volatility of a particular trade day;
c) Ratio of implied volatility to historical volatility;
d) Expectation of the future implied volatility;

9) The weekend effect can be priced into the maturity of options through:

a) By pricing Monday options lower then Friday options;
b) Implying a weight for the weekend on the Calendar day volatility;
c) The volatiltiy term structure automatically takes into account;
d) Cannot be done.

10) If the Overnight USD/JPY volatility is 11.0 on a Tuesday, and Thursday is a Tokyo holiday, what will be the 1 week volatility:

a) Between 10.0 and 11.0
b) Between 11.0 and 12.0
c) Between 8.75 and 9.75
d) Between 8.5 and 9.5

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