FIN 494 Homework 7 Solutions_2020
Problem 1
Which of the Greeks has a positive sign for a call option, but negative sign for a put option?
a. Vega
a. Delta
b. Gamma
c. Theta
Problem 2
Option is
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FIN 494 Homework 7 Solutions_2020
Problem 1
Which of the Greeks has a positive sign for a call option, but negative sign for a put option?
a. Vega
a. Delta
b. Gamma
c. Theta
Problem 2
Option is a dollar change in the value of the option per $1 change in the value of the underlying.
a. Delta
b. Elasticity
c. Theta
d. Vega
Problem 3
When dynamically hedging an option position to make it delta-neutral, the trader needs to trade
a. The underlying security
b. Another option on the same security
c. Two more options on the same security
Problem 4
“Volatility smile” is obtained by estimating stock volatility from several options, which are:
a. Written on different stocks but have the same strike price
b. Written on the same stock but have different times to expiration
c. Written on the same stock and have the same time to expiration, but have different strike prices
Problem 5
Which of the Greeks shows the sensitivity of option DELTA to the underlying stock price?
a. Elasticity
b. Gamma
c. Vega
d. Theta Problem 6
To hedge a portfolio on both gamma and vega, a trader needs:
a. Additional shares of the underlying stock
b. One more option
c. Two more options
Problem 7
Which Greek shows the sensitivity of option price to the volatility of the underlying stock?
a. Delta
b. Gamma
c. Vega
d. Theta
Problem 8
Which of the Greeks is greater than 1 in absolute value?
a. Delta of an option (<1)
b. Elasticity of an option (>1)
c. Gamma of the underlying stock (0)
c. Vega of the underlying stock (0)
Problem 9
a. Trading shares of the underlying stock will not affect either the gamma or the vega of a portfolio.
b. In a “volatility smile”, all options have the same strike price, but they expire on different dates.
c. Both of the above
d. None of the above
Problem 10
Implied volatility is the volatility that
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