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Risk Latte - Quiz # 9

Financial Derivatives Quiz
Team Latte
Apr 26, 2009

Quiz # 9

1) The Laplace transform of a constant

for any

is equal to:

d) 1

2) In quantitative finance Laplace transforms are used to:

a) do asymptotic volatility analysis;
b) estimate the stochastic integrals;
c) solve partial differential equations to value derivatives;
d) None of the above;

3) The square root process in modeling interest rates is:

a) a pure jump process
b) an Ornstein Uhlenbeck process
c) a Variance Gamma process
d) a Poisson process

4) Which of the following is TRUE about a Vasicek process for short rates:

a) when the speed of mean reversion is large the duration is zero reflecting the
         speedy mean reversion of rates toward long run target rate;
b) when the speed of mean reversion is large the duration is infinite reflecting the
         slow mean reversion toward the long run target rate;
c) when the speed of mean reversion is constant the process becomes degenerate;
d) when the speed of mean reversion is small the duration is close to zero reflecting
         oscillating mean reversion property;

5) A lognormal random variable raised to the

power, i.e.

, is:

a) also a lognormal random variable
b) not a lognormal random variable
c) a uniform random variable
d) none of the above

6) If a Weiner process is at

then what is the probability that it reaches the point

before it reaches

given that

d) None of the above

7) The moments of an Ito process can be calculated using:

a) Dirac delta function
b) Dynkin Operator
c) Fourier Transform
d) None of the above.

8) "Stopping time", a stochastic concept used in pricing exotic options, is:

a) a positive random variable that indicates the end of the game or the procedure;
b) a positive random variable that is halves in value after a certain interval of time;
c) a positive random variable that indicates the start of the game or the procedure;
d) None of the above

9) If

represents the standard normal distribution evaluated at

then which of the following is TRUE:

d) None of the above

10) Dirac delta function is most closely associated with:

a) Lookback options
b) Binary options
c) Asian options
d) Napoleon options

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