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5.4 Computer quiz

  1. A half bell-shaped discount function shows that
    1. investors are risk averse (negative market price of risk)
    2. investors are risk seeking (positive market price of risk)
    3. the volatility is relatively low

  2. A negative market price of risk shows that the investors expect
    1. a rize of the interest rates
    2. a drop of the interest rates
    3. a flattening of the interest rates

  3. For the owner of a swap, a downward drift in the spot rate
    1. is good news, since the swap becomes an asset the holder can sell further
    2. is bad news, but cannot say if earning or losing money
    3. is bad news, since the swap becomes a liability the holder is obliged to pay

  4. A negative price for a cap is obtained
    1. when the spot rate rises above the cap rate
    2. when the spot rate falls below the cap rate
    3. by mistake, since a cap does not carry any obligation

  5. A sudden rise in the volatility makes the caplet
    1. cheaper
    2. more expensive
    3. cannot say

  6. In a good FEM calculation, the parameter $ \theta$ (TimeTheta in the applet) should $ ^\spadesuit$
    1. be as small as possible in the interval [0.5;1]
    2. be as large as possible in the interval [-1;1]
    3. not affect the solution

SYLLABUS  Previous: 5.3.2 Extensions for derivatives  Up: 5 BONDS, SWAPS AND  Next: 5.5 Exercises

      
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