Quiz # 7

In his landmark book on Options trading, Dynamic Hedging, Nassim Taleb mentioned the principle of "Monkeys on a Typewriter" to illustrate the importance of luck in financial markets (why some traders make money while others don't) by invoking the infinite monkey theorem. This mathematical theorem has its origins in:


a) The Borel-Cantelli Lemma;
b) Kakutani's fixed point theorem;
c) The Total Probability Theorem;
d) Bayes' Theorem;



The trading profit and loss of an options trader in a bank would be most likely governed by:


a) mean reverting Ornstein-Uhlenbeck random walk;
b) arcsine law of random walk;
c) a type of variance gamma process;
d) none of the above;



Fisher Black and Emmanuel Derman collaborated with another colleague of theirs from Goldman Sachs to develop the now famous tree model for modelling interest rates and pricing interest rate options. That person was:


a) Jack Clark Francis;
b) William Toy;
c) Mark Musiela;
d) Dariusz Gatarek



A new financial (equity) derivative, belonging to the same class of cliquets and reverse cliquets, was introduced in the market by Goldman Sachs a few years back. The product is popularly known as:


a) Israeli Option
b) Napoleon Option
c) Parisian Option
d) Churchill Option



Pure jumps in equity prices can be modeled as:


a) Negative Binomial process
b) Gaussian process
c) Poisson process
d) Gamma process



In one of the following pricing methodologies for financial options and derivatives complex numbers enter the model. The methodology is:


a) Forward Difference equations
b) Fourier transforms
c) Crank-Nicholson technique
d) None of the above;



Siegel's paradox is most applicable to:


a) Equities
b) Commodities
c) Interest Rates
d) FX



One of the following mathematical models for pricing interest rate derivatives does not follow a Markovian process:


a) Vasicek model;
b) Heath-Jarrow-Morton model
c) Cox-Ingersoll-Ross model
d) All interest rate models follow non-Markovian process



Black-Scholes option pricing model assumes:


a) risk neutral valuation
b) complete markets
c) martingale measure
d) all the above;



One of the following persons is / was a noted mathematician:


a) Fischer Black
b) Mark Rubenstein
c) Kiyoshi Ito
d) Stephen Cox

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