QUESTION: 65 Exam Topic: 1 Volume A

Which one of the following four statements does identify correctly the relationship between the value of an option and perceived exchange rate volatility?

With increases in perceived future foreign exchange volatility, the value of all foreign exchange
As the perceived future foreign exchange volatility decreases, the value of all options increases.
As the perceived future foreign exchange volatility increases, the value of all options increases.
Option values can only change due to the factors related to the demand for specific options

Answer(s): C

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QUESTION: 66 Exam Topic: 1 Volume A

Which one of the following four mathematical option pricing models is used most widely for pricing European options?

The Black model
The Black-Scholes model
The Garman-Kohlhagen model
The Heston model

Answer(s): B

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QUESTION: 67 Exam Topic: 1 Volume A

A risk manager is considering how to best quantify option price dynamics using mathematical option pricing models.
Which of the following variables would most likely serve as an input in these models?

I) Implicit parameter estimate based on observed market prices
II) Estimates of sensitivity of option prices to parameter changes
III) Theoretical option determination based on assumptions