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Quiz Black Scholes Model

The document appears to be a quiz on options pricing and the Black-Scholes model. It contains 10 multiple choice questions testing understanding of key terms and applications of the Black-Scholes formula. The questions cover the Black-Scholes model, assumptions of the model, inputs to the formula like volatility and their effects, and differences between European and American option types.

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Mark Adrian
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526 views3 pages

Quiz Black Scholes Model

The document appears to be a quiz on options pricing and the Black-Scholes model. It contains 10 multiple choice questions testing understanding of key terms and applications of the Black-Scholes formula. The questions cover the Black-Scholes model, assumptions of the model, inputs to the formula like volatility and their effects, and differences between European and American option types.

Uploaded by

Mark Adrian
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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QUIZ

1. It is a mathematical formula that returns the fair price of a European stock option.
a. Binomial Pricing model
b. Black-Scholes Model
c. Monte-Carlo
d. None of the above

2. It is a measure of how much the security prices will move in the subsequent periods.
a. Dividend yield
b. Risk-free interest rate
c. Volatility
d. Strike price

3. The risk-adjusted probability of receiving the stock at the expiration of the option contingent
upon the option finishing in the money.
a. D1
b. D2
c. N(d1)
d. N(d2)

4. The following are the assumptions in Black-Scholes model except


a. Stock returns are not normally distributed
b. Volatility is constant over time
c. Stocks do not pay dividends
d. Risk-free interest rate doesn’t fluctuate over time

5. In what year did Robert C. Merton and Myron Scholes win the Nobel Memorial Prize in
Economic Studies?
a. 1977
b. 1973
c. 1997
d. 1999

6. In the Black and Scholes option pricing formula, an increase in a stock's volatility:
a. Increases the associated call option value
b. Decreases the associated put option value
c. Increases or decreases the option value, depending on the level of interest rates
d. Does not change either the put or call option value because put-call parity holds
7. An American option is more valuable than a European option on the same dividend-paying stock
with the same terms because the:
a. European options do not conform to the Black and Scholes model and are often mispriced
b. Dividend will be in USD and this is a more universally acceptable currency than the EUR
c. American option can be exercised from date of purchase until expiration, but the
European option can be exercised only at expiration
d. European option contract is not adjusted for stock splits and stock dividends

8. The Black-Scholes-Merton model is used for European option pricing only.


a. True
b. False
c. Neither true nor false
d. -

Use the following information for the next two questions:

The current price of a continuous-dividend paying stock is observed to be $50 per share while its
volatility is given to be 0.34. The continuously compounded, risk-free interest rate is 0.05. Consider a
European call option with the strike price equal to $40 and the exercise date in three months.

9. What is the value of d1?


a. 1.44
b. 1.30
c. 0.44
d. 1.5

10. Using the Black-Scholes pricing formula, find the value of call option?
a. $9.08
b. $9.80
c. $10.55
d. $14.10

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