Question 1

2020 Crude Oil futures crash made the futures price dip into a negative territory on April 20th. Which statement is true?

A.Crude Oil futures option price should become negative accordingly

B.Crude Oil futures option strike price should become negative accordingly

C.Crude Oil futures option price can never be negative

D.None of the above

Question 2

When volatility decreases with all else remaining the same, which of the following is true?

A.

Both calls and puts increase in value

B.Both calls and puts decrease in value

C.Calls increase in value while puts decrease in value

D.Puts increase in value while calls decrease in value

Question 3

Which of the following is not a reason that Black-Scholes option pricing formula won Nobel price?

A.It does not depend on drift rate, hence, is independent to investors' risk preference

B.It can price both European and American options

C.Black-Scholes introduces dynamic hedge which completes the market.

D.None of the above

Question 4

What is not an advantage of using futures to hedge stock options?

A.Futures can be chosen with a maturity matching option maturity

B.There is no initial cost to enter into a futures position

C.Futures does not usually lead to a delivery

D.None of the above

Question 5

Equating theoretical option price and the market option price, we can solve for implied indicators. Which is appropriate to be used as a quote for option?

A.Implied strike price

B.Implied volatility

C.Implied risk-free rate

D.None of the above

Question 6

Assume that an exotic option payoff is described as max [max (St)-K, 0], where t belongs in time interval [0, T].Which of the following statement isfalse?

A.The option holder can exercise or forfeit the option only at the maturity T.

B.The option cannot be priced using Binomial tree.

C.The option holder can exercise or forfeit the option at any time t.

D.The option payoff is path dependent.

Question 7

A there-step binomial tree with terminal stock prices being 1.103, 0.875, 0.695, and 0.552. At time 0, if you have insider information that at the maturity the stock price will be 0.875. Then, which is not a possible sample path?

A.Up-up-down

B.Up-down-up

C.Down-up-up

D.Down-down-up

Question 8

A three-step binomial tree with terminal stock prices being 1.103, 0.875, 0.695, and 0.552. At time 0, if you have the insider information that at the maturity the stock price will be 0.875. Then, will the option premium at time 0 still be same as if you don't have this information, please choose from the answers below?

A.Yes. Option premium is irrelevant to the private information (about the underlying) that option holder possesses.

B.No. As in that case, the risk neutral probability of the impossible sample paths become zero.

Question 9

If volatility increases, will the option premium increase or decrease?

A.It depends on the option type - call or put.

B.Option premium will increase, because the greater the volatility, the greater the time value of the option.

C.Decrease. Because the greater the volatility, the greater the risk, as investors are risk averse and they will value the option less.

D.None of the above

Question 10

Which of the following describes a situation where an American put option on a stock becomes more likely to be exercised early? Hint: early exercise is more likely to happen with reduced time value

A. Volatility decreases

B. Expected dividends increase

C. Interest rates decrease

D. All of the above