1.What was the key insight that allowed Black-Scholes-Merton to find a unique solution for European vanilla option valuation?

(a) Volatility has a smile and a skew.

(b) The option and the underlier both share the same source of uncertainty allowing it to be eliminated through portfolio construction.

(c) The option is riskless allowing it to be valued with risk neutral methods.

(d) None of the above.

2.Which of the following statements is false?

(a) For an option, replication is equal in magnitude and opposite in sign to hedging.

(b) The gamma of an option means that hedging cannot be static.

(c) The volatility smile shows how market traded volatility varies for options with different maturities.

(d) None of the above.