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Derivatives
  1. Two standard options have exactly the same features, except that one has longer maturity than the other option. Which one has the higher gamma?
  2. Suppose that you hold a long position in MBS. If you are expecting a bond market rally, would you be better off with positive convexity or negative convexity?
  3. Why do you get a “smile” effect when you plot implied volatilities of options against their strike prices?
  4. How do you calculate an options delta?
  5. Explain what the terms N(d1) and N(d2) that appear in the Standard Black-Scholes option priced formula.
  6. Draw the graph of the delta as a function of current stock price for a standard European call option.
  7. A customer call your trading desk and requests a price on a European 50-day call option. You quote $50. After hanging up, the same customer calls back within a minute and wants the price on the same option but with 100 days to maturity. How doe the price quotes for these two options compare?
  8. Stock XYZ is currently at $50. You are long a straddle on stock XYZ with a strike of $50. The cost of the straddle is 6$. What price movement are you anticipating on stock XYX?
  9. Your homework assignment asks that you value a call option using Monte Carlo simulation. Should you simulate the geometric Brownian motion for the underlying stock or the call option?
  10. What is the value of a perpetual American put option?
  11. Which structured product would you issue in the current market conditions?
  12. Explain the Greeks for options.
  13. Draw me a payoff profile for autocallable structures, digital coupon notes, Asian options and bonus certificates.
  14. What is a square root of 0.1?
  15. Is gold expensive or cheap ?
  16. Explain the assumptions behind Black-Scholes.
  17. How do you determine when to enter or exit the market using a chart?

images1 Derivatives

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