[2008]Topic 21: Volatility Smiles相关习题

Baran

AIM 4: Explain why a volatility smile may exist in equity options.

 

1、Equity options exhibit volatility smirk patterns in which implied volatility is greater for:

A) high strike price options.
 
B) low strike price options.
 
C) in-the-money put and call options.
 
D) out-of-the-money put and call options.

Baran

The correct answer is B
 

Equity options exhibit the “smirk” pattern, where implied volatility is greater for low strike price options. This would include call options, which are in-the-money and put options that are out-of-the-money.

Baran

2、“Crashophobia” is often attributed to the:

A) Asian currency crisis of 1997.
 
B) Long-Term Capital Management systemic crisis of 1998. 
 
C) U.S. stock market crisis of 1987.
 
D) Latin American sovereign debt crisis of 1990. 
 

Baran

The correct answer is C

The term “crashophobia” is attributed to Rubinstein’s explanation for the observance of a volatility “smirk” in implied volatility exhibited by equities. Implied volatilities are higher for low strike price puts because traders want to protect themselves against another substantial drop in the market.

Baran

AIM 5: Explain how the volatility term structure and volatility surfaces may be used to price options.

 

1、The volatility term structure is the relationship between implied volatilities and:

A) interest rates for at-the-money contracts.
 
B) dividend yields for at-the-money contracts.
 
C) dividend yields for out-of-the-money contracts.
 
D) time to expiration for at-the-money contracts.

Baran

The correct answer is D

Volatility term structures list the relationship between implied volatilities and time to expiration for at-the-money contracts. The term structures provide another method for traders to gauge cheap or expensive options.

Baran

AIM 7: Explain the effect jumps in asset prices have on implied volatilities.

 

1、The implied volatility pattern exhibited when a large jump or drop in price is expected due to some imminent announcement is analogous to the pattern where:

A) at-the-money options exhibit less implied volatility than away-from-the-money options.
 
B) deep in-the-money puts exhibit less implied volatility than deep in-the-money calls.
 
C) deep in-the-money calls exhibit less implied volatility than deep in-the-money puts.
 
D) at-the-money options exhibit greater implied volatility than away-from-the-money options.

Baran

The correct answer is D

Price jumps tend to generate an implied volatility "frown," where at-the-money options will tend to have greater implied volatility than away-from-the-money options. This pattern is in contrast to the "smile" or "smirk" exhibited by currency and equity options, respectively.