Which one of the following four statements on factors affecting the value of options is correct?

• A.As time passes, options will increase in value.
• B.As the value of underlying security increases, the value of the put option increases.
• C.As interest rates rise and option's rho is positive, option prices will decrease.
• D.As volatility rises, options increase in value.

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To estimate a partial change in option price, a risk manager will use the following formula:

• A.Partial change in option price = Delta x Gamma x Change in underlying price
• B.Partial change in option price = Delta x Gamma x (1+ Change in underlying price)
• C.Partial change in option price = Delta x (1+ Change in underlying price)
• D.Partial change in option price = Delta x Change in underlying price

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Which of the following factors are typically included in standard operational risk definitions?
I. Human errors
II. Process failure
III. Systems failure
IV. Unexpected events

• A.I, II and III
• B.II and III
• C.I and IV
• D.I and II

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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

• A.II, III
• B.II
• C.I, III
• D.I, II, III

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To reduce the variability of net interest income, Gamma Bank can swap positions that make its duration gap
equal to

• A.-1
• B.0
• C.0.5
• D.1

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