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)  A form of stochastic, generalized Ornstein-Uhlenbeck process, used to model short
     rates (interest rates), is given by:  . In this stochastic
     differential equation, :

(a) measures the mean reversion factor;
(b) is a measure of the heteroscedasticity in the interest rate volatility
(c) is always greater than zero
(d) None of the above;

2)  Traders have always known that volatility comes in clusters. Recently, this notion has
     been more formally described in mathematical models where:

(a) the volatility term structure converges to a long term average;
(b) the volatility term structure does not converge to a long term average;
(c) the volatility term structure oscillates between two bounds;
(d) none of the above;

3)  Suppose the 30-day variance swap is 22% and the expected 30-day realized variance
     is 19%, both quoted as annual volatilities; what is the expected payoff to a long
     position of $100 per basis point on the swap?

(a) $765,000
(b) $1,051,000
(c) $1,230,000
(d) $1,418,000

4)  Consider a 6-month variance swap issued 2 months ago with a strike of 24% and a
     point value of $1,000 per percentage point. The realized volatility over past 2 months
     was 19% and today’s 4-moth variance swap rate is 21%. Assuming a zero discount
     rate, what is the marked to market value of the variance swap?

(a) $74,000
(b) - $161,667
(c) - $213,504
(d) $123,500

5)  The implied volatility of the fixed side of the swap is 15% and the floating side of the
     swap is 22% and their implied correlation is 0.35. The swaption volatility is therefore:

(a) 29%
(b) 31%
(c) 33%
(d) Cannot be determined from this data;

6)  Which of the following is true for an at the money (ATM) option:

(a) it has a large vega but a very small, and possibly even negative, Volga;
(b) it has a large vega and a large Volga;
(c) it has a small vega and a large Volga;
(d) it has a small vega and a very large negative Volga:

7)  Convexity is equivalent to:

(a) gamma
(b) vega
(c) vanna
(d) vvol (volatility of volatility)

8)  "Dark Pools" in the cash equity markets are linked to:

(a) Liquidity of the stock
(b) volume weighted average price
(c) volatility of the stock
(d) None of the above;

9)  A sequence of prime numbers is:

(a) a complex series
(b) a random series
(c) both a complex and a random series
(d) oscillating series

10)  If is a random variable and is a convex function of , and
      is the expectation operator then which of the following is true and applicable for
      financial options?

a)
b)
c)
d) None of the above

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