18 1994 P 19 BE4 P 20 32534 P What does the shape of the volatility smile reveal about put options on equity? Options implied volatility : 0 O What does gamma measure? : a. The rate of change of the price of an option with the interest rate b. The rate of change of option delta with the underlying asset price c. The rate of change of the price of an option with the passage of time d. The rate of change of the price of an option value with the volatility of the underlying asset price O O O a. deep-in-the-money b. All of the above c. deep-out-of-the-money d. close-to-the-money Suppose a non-dividend paying stock now sells at $100, and its price will be either $120 or $90 one year later. The risk-free rate is 9.531% per annum with continuous compounding (or equivalently 10% with annual compounding (or e0.09531x1=1.10-1=10%). Consider a one-year European put option on the stock with a strike price of $110. What are the payoffs of this put option at maturity? : O a. fu= 0, fa=20 O O O have relatively high b. fu= 20, fa=0 c. f = 0, fd=10 d. fu=10, fd=0