LOS h: Distinguish between historical yield volatility and implied yield volatility.

Q1. Which of the following is a difference between historical yield volatility and implied yield volatility? Implied yield volatility is:

A)   a more objective measure of the yield volatility.

B)   based on a bond pricing model.

C)   based on an option pricing model.

Q2. Which of the following is the most questionable assumption associated with the implied yield volatility metric? Implied yield volatility assumes:

A)   that the bond pricing model used is correct.

B)   that the option pricing model used is correct.

C)   that the yield curve is flat.

Q3. To estimate yield volatility, an analyst may use historical yields or an implied yield volatility calculated from current market conditions. Identify the pair of terms below that correctly matches a key ingredient in each estimation process with the process itself.

A)   Historical yield volatility: The standard deviation formula. Implied yield volatility: Derivative prices.

B)   Historical yield volatility: Duration. Implied yield volatility: A series of log ratios of daily rates.

C)   Historical yield volatility: Derivative prices. Implied yield volatility: The standard deviation formula.

LOS h: Distinguish between historical yield volatility and implied yield volatility. fficeffice" />

Q1. Which of the following is a difference between historical yield volatility and implied yield volatility? Implied yield volatility is:

A)   a more objective measure of the yield volatility.

B)   based on a bond pricing model.

C)   based on an option pricing model.

Correct answer is C)

If the observed price of an option is assumed to be the fair price and the option pricing model is assumed to be the model that would generate the fair price, then the implied volatility is the yield volatility that, as an input to the option pricing model would produce the observed option price.

Q2. Which of the following is the most questionable assumption associated with the implied yield volatility metric? Implied yield volatility assumes:

A)   that the bond pricing model used is correct.

B)   that the option pricing model used is correct.

C)   that the yield curve is flat.

Correct answer is B)

If the observed price of an option is assumed to be the fair price and the option pricing model is assumed to be the model that would generate the fair price, then the implied volatility is the yield volatility that, as an input to the option pricing model, would produce the observed option price.

Q3. To estimate yield volatility, an analyst may use historical yields or an implied yield volatility calculated from current market conditions. Identify the pair of terms below that correctly matches a key ingredient in each estimation process with the process itself.

A)   Historical yield volatility: The standard deviation formula. Implied yield volatility: Derivative prices.

B)   Historical yield volatility: Duration. Implied yield volatility: A series of log ratios of daily rates.

C)   Historical yield volatility: Derivative prices. Implied yield volatility: The standard deviation formula.

Correct answer is A)

The historical yield volatility method uses the standard deviation formula. The implied yield volatility method uses derivative prices. In the latter method, the current derivative prices are entered into a formula along with other observed variables. The series of log ratios of daily rates is associated with the historical yield volatility. Duration is not directly relevant.

[此贴子已经被作者于2009-3-20 13:42:27编辑过]

感谢楼主

Thanks for sharing it!