1. Gamma is a measure of a. the sensitivity of the change in option price to the change in the underlyings price b. the sensitivity of the change in option price to the change in risk-free interest rate c. the second-order derivative of option price with respect to the underlyings volatility d. the first-order derivative of option delta with respect to the underlyings price

2. The Black-Scholes model does NOT assume a. continuous trading is possible b. underlying price follows the Geometric Brownian motion c. investors are risk-averse d. the risk-free interest rate is constant

3. Suppose an Investment Bank, JP Quantum, just wrote a call option but would like to delta hedge this position. Out of the 4 choices below, dynamic hedging is especially desired (relative to static hedging), a. when options gamma is high b. when option delta is high c. when underlyings price is high d. when the trading cost associated with hedging is high

4. The value of a call option decreases when the interest rate and the value of a put option decreases when the interest rate . a. decreases, decreases b. decreases, increases c. increases, decreases d. increases, increases