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)  Assume that there is only one stock in the financial market and the risk free interest
     rate is zero and the volatility is 25%. The stock can either go up or down in the next
     period. The entropy of the system is maximized when:

(a) both the "up" and "down" probabilities are 50%
(b) when the "up" probability is 48.5% and the "down" probability is 51.5%
(c) when the "up" probability is 37% and "down" probability
(d) None of the above;

2)  If the state of a system (could be a financial system) is given by
      where, denotes the state of a system and is a square
     matrix. If we can mathematically invert the given square matrix, then it signifies
     that:

(a) information is conserved
(b) the matrix is non-singular
(c) the old state of the system can be recovered given the new state of the system
(d) All of the above

3)  An investor is long a "powered" squared call option whose payoff is a function of the
     square of the underlying stock, . The payoff is given by:

     

     If the volatility of the underlying stock is then in the above option payoff, the
     investor’s exposure to volatility is:

(a)
(b)
(c)
(d)

4)  Stochastic Correlation is a

(a) Vasicek process
(b) CIR square root process
(c) Jacobi process
(d) None of the above;

5)  Of the following options which one would be most sensitive to forward volatility skew?

(a) Asian option
(b) Knock out Option
(c) Reverse cliquets
(d) Lookback option

6)  Colour is an option sensitivity (greek) that is defined as:

(a) change of delta with time
(b) change of gamma with time
(c) change of vega with time
(d) none of the above

7)  An equity trader is involved in pairs trading whereby he is long stock and short
     two of stock . The pair is said to be stationary if,

(a) has more or less constant mean
(b) has a variable mean
(c) grows at a fixed rate
(d) None of the above

8)  A box of ice cubes is allowed to melt. As the ice cubes melt there will appear a
     boundary between the ice and the water, and as the ice continues to melt the
     amount of water increases and the amount of ice decreases. This is an example of
     free boundary problem. Another example from finance would be:

(a) Knock out option with a barrier below the current spot
(b) American style options with early exercise
(c) Combination of a forward contract and a call option
(d) None of the above

9)  One of the following persons never worked for Goldman Sachs

(a) Fischer Black
(b) Emmanuel Derman
(c) Bill Toy
(d) Myron Scholes

10)  One of the following statistical distributions can be used in modelling extreme
     events in financial markets:

a) Cauchy distribution
b) Weibull distribution
c) Exponential distribution
d) Gamma distribution

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