Reading 62: Option Markets and Contracts-LOS h 习题精选 center, future, methods, 2011

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Session 17: Derivative Investments: Options, Swaps, and Interest Rate and Credit Derivatives
Reading 62: Option Markets and Contracts

LOS h: Demonstrate the methods for estimating the future volatility of the underlying asset (i.e., the historical volatility and the implied volatility methods).

 

 

In order to compute the implied asset price volatility for a particular option, an investor:

A) must have a series of asset prices.

B) must have the market price of the option.

C) does not need to know the risk-free rate.

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In order to compute the implied volatility we need the risk-free rate, the current asset price, the time to expiration, the exercise price, and the market price of the option.

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Which of the following methods is NOT used for estimating volatility inputs for the Black-Scholes model?

A) Using long term historical data.

B) Using exponentially weighted historical data.

C) Models of changing volatility.

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The volatility is constant in the Black-Scholes model.

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Which of the following best describes the implied volatility method for estimated volatility inputs for the Black-Scholes model? Implied volatility is found:

A) by solving the Black-Scholes model for the volatility using market values for the stock price, exercise price, interest rate, time until expiration, and option price.

B) using historical stock price data.

C) using the most current stock price data.

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Implied volatility is found by “backing out” the volatility estimate using the current option price and all other values in the Black-Scholes model.

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Which of the following best explains the sensitivity of a call option's value to volatility? Call option values:

A) increase as the volatility of the underlying asset increases because investors are risk seekers.

B) are not affected by changes in the volatility of the underlying asset.

C) increase as the volatility of the underlying asset increases because call options have limited risk but unlimited upside potential.

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A higher volatility makes it more likely that options end up in the money and can be exercised profitably, while the down side risk is strictly limited to the option premium.

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Which of the following statements regarding an option's price is CORRECT? An option's price is:

A) an increasing function of the underlying asset's volatility.

B) a decreasing function of the underlying asset's volatility when it has a long time remaining until expiration and an increasing function of its volatility if the option is close to expiration.

C) a decreasing function of the underlying asset's volatility.

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Since an option has limited risk but significant upside potential, its value always increases when the volatility of the underlying asset increases.

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Which of the following statements concerning vega is most accurate? Vega is greatest when an option is:

A) at the money.

B) far in the money.

C) far out of the money.

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When the option is at the money, changes in volatility will have the greatest affect on the option value.

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If we use four of the inputs into the Black-Scholes-Merton option-pricing model and solve for the asset price volatility that will make the model price equal to the market price of the option, we have found the:

A) option volatility.

B) historical volatility.

C) implied volatility.

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The question describes the process for finding the expected volatility implied by the market price of the option.