OPTIONS FUTURES AND OTHER DERIVATIVES
GLOBAL EDITION CERTIFICATION EVALUATION
TEST 2026 FULL QUESTIONS AND CORRECT
ANSWERS ALREADY PASSED GRADED A+
◉ Exotic Option. Answer: A nonstandard option.
◉ Zero-Coupon Yield Curve. Answer: A plot of the zero-coupon
interest rate against time to maturity.
◉ Delta-Neutral Portfolio. Answer: A portfolio with a delta of zero so
that there is no sensitivity to small changes in the price of the
underlying asset.
◉ Gamma-Neutral Portfolio. Answer: A portfolio with a gamma of
zero.
◉ Vega-Neutral Portfolio. Answer: A portfolio with a vega of zero.
◉ Short Position. Answer: A position assumed when traders sell
shares they do not own.
,◉ Diagonal Spread. Answer: A position in two calls where both the
strike prices and times to maturity are different. (A diagonal spread
can also be created with put options.)
◉ Spread Transaction. Answer: A position in two or more options of
the same type.
◉ Combination. Answer: A position involving both calls and puts on
the same underlying asset.
◉ Long Position. Answer: A position involving the purchase of an
asset.
◉ Calendar Spread. Answer: A position that is created by taking a
long position in a call option that matures at one time and a short
position in a similar call option that matures at a different time. (A
calendar spread can also be created using put options.)
◉ Tailing the Hedge. Answer: A procedure for adjusting the number
of futures contracts used for hedging to reflect daily settlement.
◉ Repurchase agreement. Answer: A procedure for borrowing
money by selling securities to a counterparty and agreeing to buy
them back later at a slightly higher price.
,◉ CreditMetrics. Answer: A procedure for calculating credit value at
risk.
◉ Bootstrap Method. Answer: A procedure for calculating the zero-
coupon yield curve from market data.
◉ Static Options Replication. Answer: A procedure for hedging a
portfolio that involves finding another portfolio of approximately
equal value on some boundary.
◉ Dynamic Hedging. Answer: A procedure for hedging an option
position by periodically changing the position held in the underlying
asset. The objective is usually to maintain a delta-neutral position.
◉ Duration Matching. Answer: A procedure for matching the
durations of assets and liabilities in afinancial institution.
◉ Monte Carlo Simulation. Answer: A procedure for randomly
sampling changes in market variables in order to value a derivative.
◉ Cash Flow Mapping. Answer: A procedure for representing an
instrument as a portfolio of zero-coupon bonds for the purpose of
calculating value at risk.
, ◉ Backwards Induction. Answer: A procedure for working from the
end of a tree to its beginning in order to value an option.
◉ Program Trading. Answer: A procedure where trades are
automatically generated by a computer and transmitted to the
trading floor of an exchange.
◉ Principal Protected Note. Answer: A product where the return
earned depends on the performance of a risky asset but is
guaranteed to be nonnegative, so that the investor's principal is
preserved.
◉ Variance-Gamma Model. Answer: A pure jump model where small
jumps occur often and large jumps occur infrequently.
◉ Protective Put. Answer: A put option combined with a long
position in the underlying asset.
◉ Margin Call. Answer: A request for extra margin when the balance
in the margin account falls below the maintenance margin level.
◉ Ito's Lemma. Answer: A result that enables the stochastic process
for a function of a variable to be calculated from the stochastic
process for the variable itself.
GLOBAL EDITION CERTIFICATION EVALUATION
TEST 2026 FULL QUESTIONS AND CORRECT
ANSWERS ALREADY PASSED GRADED A+
◉ Exotic Option. Answer: A nonstandard option.
◉ Zero-Coupon Yield Curve. Answer: A plot of the zero-coupon
interest rate against time to maturity.
◉ Delta-Neutral Portfolio. Answer: A portfolio with a delta of zero so
that there is no sensitivity to small changes in the price of the
underlying asset.
◉ Gamma-Neutral Portfolio. Answer: A portfolio with a gamma of
zero.
◉ Vega-Neutral Portfolio. Answer: A portfolio with a vega of zero.
◉ Short Position. Answer: A position assumed when traders sell
shares they do not own.
,◉ Diagonal Spread. Answer: A position in two calls where both the
strike prices and times to maturity are different. (A diagonal spread
can also be created with put options.)
◉ Spread Transaction. Answer: A position in two or more options of
the same type.
◉ Combination. Answer: A position involving both calls and puts on
the same underlying asset.
◉ Long Position. Answer: A position involving the purchase of an
asset.
◉ Calendar Spread. Answer: A position that is created by taking a
long position in a call option that matures at one time and a short
position in a similar call option that matures at a different time. (A
calendar spread can also be created using put options.)
◉ Tailing the Hedge. Answer: A procedure for adjusting the number
of futures contracts used for hedging to reflect daily settlement.
◉ Repurchase agreement. Answer: A procedure for borrowing
money by selling securities to a counterparty and agreeing to buy
them back later at a slightly higher price.
,◉ CreditMetrics. Answer: A procedure for calculating credit value at
risk.
◉ Bootstrap Method. Answer: A procedure for calculating the zero-
coupon yield curve from market data.
◉ Static Options Replication. Answer: A procedure for hedging a
portfolio that involves finding another portfolio of approximately
equal value on some boundary.
◉ Dynamic Hedging. Answer: A procedure for hedging an option
position by periodically changing the position held in the underlying
asset. The objective is usually to maintain a delta-neutral position.
◉ Duration Matching. Answer: A procedure for matching the
durations of assets and liabilities in afinancial institution.
◉ Monte Carlo Simulation. Answer: A procedure for randomly
sampling changes in market variables in order to value a derivative.
◉ Cash Flow Mapping. Answer: A procedure for representing an
instrument as a portfolio of zero-coupon bonds for the purpose of
calculating value at risk.
, ◉ Backwards Induction. Answer: A procedure for working from the
end of a tree to its beginning in order to value an option.
◉ Program Trading. Answer: A procedure where trades are
automatically generated by a computer and transmitted to the
trading floor of an exchange.
◉ Principal Protected Note. Answer: A product where the return
earned depends on the performance of a risky asset but is
guaranteed to be nonnegative, so that the investor's principal is
preserved.
◉ Variance-Gamma Model. Answer: A pure jump model where small
jumps occur often and large jumps occur infrequently.
◉ Protective Put. Answer: A put option combined with a long
position in the underlying asset.
◉ Margin Call. Answer: A request for extra margin when the balance
in the margin account falls below the maintenance margin level.
◉ Ito's Lemma. Answer: A result that enables the stochastic process
for a function of a variable to be calculated from the stochastic
process for the variable itself.
