[ 2009 FRM Sample Exam ] Market risk measurement and management Q7 management, following, positive, position, highest

Babul

 

7. Given the same underlying asset and basis, which of the following yields the highest positive delta?

A. A long position in an at?the?money call option with a long time to expiration

B. A long position in a futures contract

C. A short position in an at?the?money put option with a long time to expiration

D. Cannot be determined

Babul

 

Correct answer is Bfficeffice" />

A. is incorrect as long in call gives a delta between 0 and 1.

B. is correct. The delta for future is always cnostant at ffice:smarttags" />1 in long position.

C. is incorrect. Put gives negative delta. Short in put will give positive one. However, the reasoning is similar to a.

D. is incorrect. The ranking between A to C can be determined.

Reference: John Hull, "Options, Futures and Other Derivatives 5th /e", (New York: McGraw?Hill, 2001), Chapter 14

Type of question: Market Risk Management

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