All questions have been designed after talking to or having been referenced from the work of traders and market practitioners (quants, risk managers, etc.) who have either worked at Goldman Sachs or are as smart, if not more, than those who work at Goldman Sachs. Forget FRM, PRM, QRM, GRM, CFA, MFA, TFA and all the other crap on which you spend so much money and time. If you get these following questions right, you are there, mate!

So, are you better than a Goldman Sachs trader? Answer these questions and find out. If you get less than 80% then you better go back and waste yourself with all those shitty exams.

1)  You are an experienced exotic equity options trader and of all the exotic options
     available, you would not want to touch an Installment option because:

(a) the liquidity issues can become severe;
(b) for the hedge to be stable you need to analyze up to nine moments of the
          distribution;
(c) It is not possible to have static topography of the position;
(d) Closed form valuation of these kinds of options does not exist.

2)  An arithmetic average on USD/JPY currency pair is not equal to an 1/(average on
     JPY/USD) because of:

(a) Lognormal random walk
(b) Jensen’s inequality
(c) Ito’s lemma
(d) None of the above;

3)  While using a Monte Carlo simulation method for Heston’s stochastic volatility model
     to price exotic options the method most preferred to avoid negative variances is:

(a) Euler discretization with absorption condition;
(b) Euler discretization with reflection condition
(c) Milstein discretization using higher order Ito-Taylor expansion
(d) All the above;

4)  If you are pricing Napoleon options then you are most likely to use:

(a) Local volatility model
(b) Independent increment method
(c) Stochastic volatility model
(d) Some kind of deterministic volatility fit to the volatility term structure

5)  A limit order is a limiting case of a:

(a) Digital call option
(b) Barrier option
(c) Vanilla put option
(d) None of the above;

6)  You are trading barrier options (knock-outs & knock-ins) in a mean-reverting market.
     You would automatically assume that:

(a) there is a high chance of the barrier component of the option being overpriced
(b) there is a high chance of the barrier component of the option being under-priced
(c) mean reversion has no impact on pricing;
(d) mean reversion will cause the barrier component of the option to be priced very
          low;

7)  Which of the features of a Reverse Knock-out option is true:

(a) at the barrier the American Bet (digital) dominates;
(b) they appear to be priced extremely (abnormally) low;
(c) they decay negatively;
(d) All the above;

8)  Generally speaking, a market maker in options is:

(a) Long volatility
(b) Short volatility
(c) Is indifferent to volatility moves;
(d) Profits from volatility when the market crashes;

9)  Who amongst following was not associated with the development of the methodology
     to create a volatility surface:

(a) Emanuel Derman
(b) Bruno Dupire
(c) Mark Rubenstein
(d) Fisher Black

10)  If is a constant, is the strike price, is the level of the underlying index
      (asset), is the implied volatility, then the local volatility can be expressed,
      in a very simple model as proposed by Derman and Kani as:

a)
b)
c)
d)

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