Risk Latte - Quiz # 3

a) remains relatively stable throughout the life of the contract;
b) remains highly unstable throughout the life of the contract;
c) rises rapidly close its expiry;
d) decreases rapidly close to its expiry;

5) The hedge ratio, or the delta, of a logarithmic forward contract is given by:

a) the inverse of the conventional forward contract;
b) the product of the conventional forward contract and the spot;
c) the square of the conventional forward contract;
d) the square root of the conventional forward contract;

6) The stock is trading at $100 and the annualized volatility of the stock is 20% and the risk free rate is 5%. The price of an at the money (ATM) up and out call option will barrier set at $110 and a rebate payment of $10 is:

a) $5.61
b) $6.78
c) $9.25
d) $9.34

7) Girsanov's Theorem plays a central role in the pricing of :

a) Compound options;
b) Chooser Options;
c) Barrier Options;
d) Asian Options;

8) An Exploding Option is:

a) the sum of a knock out option and a binary knock in options;.
b) the sum of a knock out option with a barrier at the cap and a binary knock in option;
c) a binary knout out and a binary knock in options;
d) None of the above.

9)Arrow-Debreu(AD) Prices are the price today of a security that:

a) pays off $0 if a certain node in a trinomial tree is reached and $1 otherwise;
b) pays off $1 if a certain node in a trinomial tree is reached and $0 otherwise;
c) pays off $1 at all nodes of the tree;
d) None of the above;

10) An option pays a certain level of the Nikkei225 index only if, at the options' maturity, the U.S.Dollar is at a certain prescribed level against the Japanese Yen. Such an option is called:

a) Quanto digital option;
b) Correlation digital option;
c) Double barrier option;
d) None of the above.

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