Financial Risk Management Market Risk Measurement 2

Question 1

What is the Greeks term 'Delta' used to measure in options risk?

Accepted Answer

Sensitivity of option price to changes in the underlying asset price

Answer

Sensitivity of option price to changes in volatility

Answer

Sensitivity of option price to the passage of time

Answer

Sensitivity of option price to changes in interest rates

Question 2

Which Greek measures the rate of change of Delta with respect to the underlying asset price?

Accepted Answer

Gamma

Answer

Vega

Answer

Theta

Answer

Rho

Question 3

What does 'Vega' represent in the context of options risk management?

Accepted Answer

Sensitivity to changes in implied volatility

Answer

Sensitivity to changes in interest rates

Answer

Sensitivity to changes in the underlying dividend yield

Answer

Sensitivity to changes in time to expiry

Question 4

What is basis risk in the context of market risk hedging?

Accepted Answer

The risk that the price difference between the hedge instrument and the underlying exposure changes unexpectedly

Answer

The risk that a hedge instrument moves in the same direction as the exposure

Answer

The risk of counterparty default on a futures contract

Answer

The risk of regulatory changes affecting derivative pricing

Question 5

A portfolio has a duration of 5 years and interest rates rise by 100 bps. Approximately how much does the portfolio value change?

Accepted Answer

Decreases by 5%

Answer

Increases by 5%

Answer

Increases by 0.5%

Answer

Decreases by 0.5%

Question 6

What is 'convexity' in fixed income risk management?

Accepted Answer

A second-order measure of interest rate sensitivity that accounts for the curvature of the price-yield relationship

Answer

A measure of a bond's credit quality

Answer

The difference between a bond's coupon rate and its yield to maturity

Answer

The correlation between bond prices and equity prices