1.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) historical volatility. B) market volatility. C) option volatility. D) implied volatility. The correct answer was D) The question describes the process for finding the expected volatility implied by the market price of the option. 2.Which of the following is TRUE concerning an option's sensitivity to volatility as a function of an asset's price? An option's sensitivity to volatility is highest when the option: A) price is low. B) is in the money. C) is at the money. D) is out of the money. The correct answer was C) When the option is at the money slight changes in the volatility of the underlying asset will have greatest affect on the probability of the option being in the money at expiration. 3.Which of the following is TRUE for an option's price? An option's price is: A) a decreasing function of the underlying asset's volatility. B) unaffected by changes in the underlying asset's volatility. C) an increasing function of the underlying asset's volatility. D) 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. The correct answer was C) Since an option has limited risk but significant upside potential, its value always increases when the volatility of the underlying asset increases. 4.Which of the following best explains the sensitivity of a call option's value to volatility? Call option values: A) are not affected by changes in the volatility of the underlying asset. B) increase as the volatility of the underlying asset increases because call options have limited risk but unlimited upside potential. C) decrease as the volatility of the underlying asset increases because investors are risk averse. D) increase as the volatility of the underlying asset increases because investors are risk seekers. The correct answer was B) 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. 5．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 historical option price data. D) using the most current stock price data. The correct answer was A) Implied volatility is found by “backing out” the volatility estimate using the current option price and all other values in the Black-Scholes model. 6.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 the most current historical data. C) Using exponentially weighted historical data. D) Models of changing volatility. The correct answer was D) The volatility is constant in the Black-Scholes model. 7.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. D) does not need the time to expiration of the option. The correct answer was B) 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. | 
发表于 2008-4-22 13:38
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