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Home  >> Quiz >> Financial Derivatives Quiz >> Quiz # 5 September 7, 2010, 2:06 am
Financial Derivatives Quiz
Team Latte
Feb 12, 2006

Quiz # 5

1) SYCURVE options were introduced in 1989 by:

a) Citigroup;
b) Morgan Stanley;
c) Goldman Sachs;
d) JP Morgan;

2) MOTTO, CROSS AND ISO options are service marks of:

a) Goldman Sachs;
b) Citigroup;
c) Bankers Trust;
d) JP Morgan;

3) Futures offer:

a) a symmetric risk-reward profile;
b) an asymmetric risk-reward profile;
c) the same risk-reward profile as options;
d) None of the above.

4) The 30 year bond yield is 5% and the volatility of the 30 year yield is 8%, the two year note yield is 3.5% and the volatility of the two year note yield is 6.5%; the correlation between the two year and the 30 year yield is 0.65. The yield spread volatility is:

a)  1.67%
b) 7.82%
c) 2.35%
d) 0.31%

5) An investor is long a SYCURVE 2/30 put option with a strike of 150 bp. The option will expire in the money if:

a) if the yield spread between the 30 year bond and the 2 year note is less than 150          bp on the expiration date;
b) if the yield spread between the 30 year bond and the 2 year note is greater than          150 bp on the expiration date;
c) if the yield of 30 year bond on the expiration date has not risen by more than 150          bp from the spot on the date of purchase of the put.
d) if the yield of 2 year note on the expiration date has not risen by more than 150 bp          from the spot on the date of purchase of the put.

6) An investor is unsure of whether the bonds will out perform the stocks in the next one year or the stocks will outperform the bonds. However, according to him the chances of stocks outperforming the bonds are higher. The investor can then consider buying:
a) bond over stock options(BOS);
b) stock over bond options(SOB);
c) Both the above;
d) Equity index options.

7) Leland's formula calculates:
a) volatility by adjusting the transaction costs;
b) volatility by adjusting the maturity of the transaction;
c) option's vega by adjusting for volatility of volatility;
d) None of the above.

8) A Kalman Filter is used:

a) to measure the time decay in options;
b) to measure exponential decay in historical volatility;
c) to measure the effect of fat tails in volatility;
d) None of the above;

9)By jensen's inequality

a) the arithmetic average on USD-JPY is equal to one divided by the average on          USD-JPY;
b) the arithmetic average on USD-JPY is not equal to one divided by the average on          USD-JPY;
c) the arithmetic average on USD-JPY is equal to natural log of the average on          USD-JPY;
d) the arithmetic average on one divided USD-JPY is equal to natural log of the          arithmetic average on USD-JPY;

10) Assume that the Nikkei index is trading at 12,000. A Dollar based fund manager is long Japanese stocks. For him a lower Dollar-stronger yen is sufficient to create a profit if the Nikkel index does not move much in a certain time span. He will most likely buy a SCUD option which is:

a) Nikkel index put option with a knock-out on a lower Dollar-Yen;
b) Nikkei index call option with a knock-out on a higher Dollar-Yen;
c) Dollar-Yen put with a knock-out on higher Nikkei level;
d) Dollar-Yen call with a knock-out on lower Nikkei level;

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