5. Risk Management

Options Pricing — Quiz

Test your understanding of options pricing with 5 practice questions.

Practice Questions

Question 1

In the context of the Black-Scholes model, what is the partial derivative of the option price with respect to the underlying asset's price, and how is it interpreted?

Question 2

Consider a European call option with a strike price of $$100$, a current stock price of $$105$, a risk-free rate of $5\% per annum, a time to expiration of $0.5$ years, and a volatility of $20\%$ per annum. Using the Black-Scholes formula, calculate the value of $d_1$.

Question 3

In a two-step binomial option pricing model, if the underlying stock price is initially $$50$, and it can move up by $20\%$ or down by $10\% in each step, what are the possible stock prices at the end of the second step?

Question 4

Which of the following scenarios would most likely lead to a negative Theta for a long call option position?

Question 5

The Black-Scholes model assumes continuous trading and that the underlying asset's price follows a geometric Brownian motion. What is a direct implication of this assumption regarding the distribution of the asset's price at expiration?