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4.6 Computer quiz

- The present value of an plain vanilla option can be calculated using

- the average terminal payoff from possible realizations of the underlying
- the payoff from the average possible realization of the underlying
- the time averaged payoff from possible realization of the underlying

- Approaching the expiry, the price of a vanilla call on a share without
dividends

- rises everywhere and particularly at the money
- falls everywhere and particularly at the money
- rises out-of-the-money and falls in-the money
- falls out-of-the-money and rises in-the-money

- For the same underlying and time to expiry, a larger strike price yields

- a higher price for the vanilla put
- a higher price for the vanilla call
- a higher price for the cash-or-nothing call

- In a risk-neutral Monte-Carlo simulation with shares is

- the drift is equal to the long-term average growth of the stock market
- the drift is larger than the risk-free interest rate
- the drift is equal to the risk-free interest minus the dividend yield
- the volatility is equal to zero

- With a 'frown' or an inverted 'smile' in the implied volatility, the
market expects

- a systematic fall in the underlying (bear market)
- a systematic rise in the underlying (bull market)
- expects rather stable prices for the underlying

- A negative time value is obtained from

- a finite interest rates in the case of a vanilla call option
- a finite dividend yield in the case of a vanilla call option
- the volatility in the case of a super-share

**SYLLABUS** ** Previous:** 4.5.2 Expected value of
**Up:** 4 EUROPEAN OPTION PAYOFF
**Next:** 4.7 Exercises