In a binomial tree lattice, at each step the underlying price can move up by a factor of u = 1.1 or down by a factor of . The continuously compounded risk free interest rate over each time step is 1% and there are no dividends paid on the underlying. The risk neutral probability for an up move is:
Answer : D
If a time series has to be differenced twice in order to be transformed into a stationary series, the original series is said to be:
Answer : B
Consider the linear regression model for the returns of stock A and the returns of stock B. Stock A is 50% more volatile than stock B. Which of the following statements is TRUE?
Answer : C
Suppose a discrete random variable can take on the values -1, 0 and 1 each with a probability of 1/3. Then the mean and variance of the variable is
Answer : A
Let N(.) denote the cumulative distribution function and suppose that X and Y are standard normally distributed and uncorrelated. Using the fact that N(1.96)=0.975, the probability that X 0 and Y 1.96 is approximately
Answer : B
Let X be a random variable distributed normally with mean 0 and standard deviation 1. What is the expected value of exp(X)?
Answer : A
If a random variable X has a normal distribution with mean zero and variance 4, approximately what proportion of realizations of X should lie between -4 and +4?
Answer : C