Guiding Financial Engineers From All Around The World

- Two standard options have exactly the same features, except that one has longer maturity than the other option. Which one has the higher gamma?
- 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?
- Why do you get a “smile” effect when you plot implied volatilities of options against their strike prices?
- How do you calculate an options delta?
- Explain what the terms N(d1) and N(d2) that appear in the Standard Black-Scholes option priced formula.
- Draw the graph of the delta as a function of current stock price for a standard European call option.
- 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?
- 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?
- 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?
- What is the value of a perpetual American put option?
- Which structured product would you issue in the current market conditions?
- Explain the Greeks for options.
- Draw me a payoff profile for autocallable structures, digital coupon notes, Asian options and bonus certificates.
- What is a square root of 0.1?
- Is gold expensive or cheap ?
- Explain the assumptions behind Black-Scholes.
- How do you determine when to enter or exit the market using a chart?

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