Deck 24: Volatility

Question 1

When the volatility of an asset is higher at the deep in the money and deep out of the money positions,than at the money,the plot is called a volatility:

A) Skew
B) Smile
C) Smirk
D) Surface

Answer 1

B

Question 2

During periods when measured volatility is high,the typical day tends to exhibit high volatility.This behavior is referred to as volatility:

A) Clustering
B) EWMA
C) Smile
D) Stochasticity

Answer 2

A

Question 3

Ask students to provide a definition of forecasted volatility and market efficiency.Begin a discussion of the consistency or inconsistency that may exist between these two concepts.Is it possible that markets are inefficient if volatility can be forecasted? If so,how can someone take advantage of this inefficiency to make excess returns?

Answer 3

Not Answer

Question 4

What is the primary difference between ARCH models and GARCH models?

Question 5

The sum of the squared,continuously compounded returns used to calculate a volatility is referred to as:

A) ARCH
B) EWMA
C) GARCH
D) Realized quadratic variation

Question 6

What is the one aspect of volatility that is assumed in the Black-Scholes model and why might that assumption be in error?

Question 7

The negative correlation between stock prices and volatility is referred to as the:

A) Correlation effect
B) Correlation risk
C) Leverage effect
D) Leverage risk

Question 8

What concept helped Robert Engle win the Nobel Prize for economics in 2003 and what was its basic tenant?

Question 9

Why would an exponentially weighted moving average be a more accurate means of calculating volatility than a simple sampling of historical data?

Question 10

Plotting the volatility of a security in a three dimensional graph,using time to maturity on one axis and strike price on another,is referred to as volatility:

A) Skew
B) Smile
C) Smirk
D) Surface

Question 11

The S&P 100 Index implied volatility since 2003 is published by the CBOE under the ticker symbol:

A) IVX
B) SP1X
C) VIX
D) VXO

Question 12

A stock has a historical volatility of 39%.The data shows significantly increased volatility in recent data and significantly lower volatility in older data.The implied estimate of the unconditional volatility using the GARCH model is most likely to be which of the following?

A) 12%
B) 25%
C) 45%
D) 85%

Question 13

A forward contract that pays the difference between a forward price and some measure of the realized stock variance is called a Variance:

A) Skew
B) Smile
C) Surface
D) Swap

Question 14

A forward contract that pays ln(ST/S₀)and can be used to hedge or speculate on variance is called a ________ contract.

A) Growth
B) Log
C) Variance
D) Volatility

Question 15

Explain the pattern of implied volatility that is often referred to as a smirk.(Use a call as your example.)

Question 16

The process of emphasizing more recent observations of data in calculating volatility is commonly known as:

A) ARCH
B) EWMA
C) GARCH
D) Realized quadratic variation

Question 17

The S&P 100 Index implied volatility prior to 2003 is published by the CBOE under the ticker symbol:

A) IVX
B) SP1X
C) VIX
D) VXO

Question 18

A stock price has a historical volatility of 24%.If an anomalous event occurs to the company in the next past two days,which was not anticipated,what is the most likely implied estimate of the unconditional volatility using the GARCH model?

A) 12%
B) 20%
C) 27%
D) 45%