Quiz # 1

Shares of ABC corp closed at 100.35. Over the last five trading days the stock has traded at 101.00, 100.85, 101.05, 102, 101.45 respectively, with 101.45 being yesterday’s price. The historical daily volatility of the stock as of today’s close would be:


(a) 0.45%;
(b) 0.76%;
(c) 1.25%;
(d) 1.67%;




If we assume that one year comprises of 252 trading days then the annualized volatility of the stock (of company ABC corp) in the above question will be:


(a) 12.13%;
(b) 14.56%;
(c) 16.19%;
(d) 23.45%;




In a very low (approximately zero) interest rate environment, a 2 year ATM (at the money) Cliquet option on an asset with volatility of 15% and strike price resetting after one year (i.e. the strike price is equal to the value of the spot after one year) will be approximately valued at:


(a) 14.25%
(b) 16.75%
(c) 18.79%;
(d) None of the above;




Assume that the spot (asset) is equal to the discounted strike price and a 6 month option on the spot is trading at $4.00. If the spot (asset) is trading at $100 then the annualized implied volatility of the asset is:

(a) 10.25%;
(b) 12.35%;
(c) 14.18%;
(d) None of the above;




Skew, the third moment of the Normal distribution, represents:


(a) the cube of volatility of the asset price move;
(b) the correlation between the asset price move and its volatility;
(c) the correlation between the asset price move and its return;
(d) the product of volatility and the asset price move;




An asset which has a very high vvol (volatility of volatility) on a very low volatility will display:

(a) Gamma distribution;
(b) Pareto-Levy distribution;
(c) Negative Binomial distribution;
(d) Cauchy distribution;




A structure (structured product) has two assets. The “correlation vega” of the structure will be defined as:


(a) change in the volatility of the structure from a change in the correlation;
(b) change in the price of the structure from a change in the correlation;
(c) change in the vega of either of the assets from a change in the correlation;
(d) None of the above;




Which of the following markets, in general and for most of the time, exhibit more or less symmetric smiles:


(a) Equity;
(b) Commodities;
(c) FX;
(d) Credit;




Out of the money puts are trading at a much lower volatility than at the money puts. A trader buys very large quantity out of the money puts and then uses the premium to finance the purchase of small quantity of at the money puts in such a manner that the trade, at time of initiation, generates a positive cash flow (premium). This is an example of:

(a) second moment bet;
(b) third moment bet;
(c) fourth moment bet;
(d) fifth moment bet;




Asset A is 100% correlated with Asset B. Asset B has volatility of 20% and Asset A has volatility of 10%. Therefore, for every 1% move in Asset A, Asset B will move by:


(a) 1%
(b) 2%
(c) 0.2%
(d) 0.25%