Trader's Quiz on Volatility: Quiz #3
Team Latte
July 21, 2008

Which of the following greeks stands out from the others:


(a) delta
(b) gamma
(c) vega
(d) theta




The a major downside to the measurement of vega is:


(a) it is mostly unstable for exotic options;
(b) it cannot be measured accurately if volatility is stochastic;
(c) it is only really meaningful for options having single sided gamma
          everywhere;
(d) None of the above;




Due to Jensen’s inequality, which of the following is true:


(a) Volga measures the convexity due to random volatility;
(b) Vanna measures the convexity due to random volatility;
(c) Vega measures the convexity due to random volatility;
(d) Convexity due to random volatility cannot be measured;




 If   and  then, in a Black-Scholes world with constant volatility, the second derivative of an option value with respect to the volatility is directly proportional to:

(a)
(b)
(c)
(d)




In a Black-Scholes world with constant volatility, for a European call the second derivative of the option value with respect to the volatility is lowest (almost zero):


(a) for out of the money (OTM) strikes;
(b) for in the money (ITM) strikes;
(c) for at the money (ATM) strikes;
(d) nowhere;




Dispersion trading is an option trading strategy that involves:


(a) going long on an index option and shorting a basket of options on the
          individual stocks which comprise the index;
(b) shorting an index option and going long on a basket of options on the
          individual stocks which comprise the index;
(c) going long on an index option and shorting the underlying index;
(d) shorting the index option and going long on the underlying index;




Which of the following models exploit “asymptotic analysis” of low volatility of volatility:


(a) Hull-White (1987) model;
(b) SABR model;
(c) BGM model;
(d) HJM model;




Vega VaR is a market risk management technique used by some option traders to estimate:


(a) the change in the dollar value of the options book with respect to one vol
          point move;
(b) the change in the dollar value of the options book with respect to one basis
          point move in the risk free rate;
(c) sensitivity of the options book to the changes in volga;
(d) None of the above;




Generally, when the stock price falls the volatility rises. This phenomenon shows that variables and parameters in a model can move together. For this reason, many option traders make use of:

(a) total greeks;
(b) partial greeks;
(c) shadow greeks;
(d) higher order greeks;



Who amongst the following is a guru on options and derivatives and yet is, and has been, an academic by profession:


(a) Nassim Taleb
(b) Paul Wilmott
(c) Espen Huag
(d) Emanuel Derman