PRMIA 8002 Exam Actual Questions

Name: Mathematical Foundations of Risk Measurement :II
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SKU: 8002
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The questions for 8002 were last updated on Sep 23, 2024.

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Question No. 1

An option has value 10 when the underlying price is 99 and value 9.5 when the underlying price is 101. Approximate the value of the option delta using a first order central finite difference.

A-4

B0.25

C-0.5

D-0.25

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Correct Answer: D

Question No. 2

When calculating the implied volatility from an option price we use the bisection method and know initially that the volatility is somewhere between 1% and 100%. How many iterations do we need in order to determine the implied volatility with accuracy of 0.1%?

A10

B100

C25

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Correct Answer: A

Question No. 3

The bisection method can be used for solving f(x)=0 for a unique solution of x, when

AThe function f(x) is continuous and monotonic

BThe function f(x) is differentiable

CThe function f(x) is differentiable and we have an explicit expression for the derivative

DThe function f(x) is continuous

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Correct Answer: A

Question No. 4

What is a Hessian?

ACorrelation matrix of market indices

BThe vector of partial derivatives of a contingent claim

CA matrix of second derivatives of a function

DThe point at which a minimum of a multidimensional function is achieved

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Correct Answer: C

Question No. 5

The Newton-Raphson method

Ais based on finding a middle point between left and right end of the search interval

Bis based on Taylor series and uses the first derivative

Ccan be used for continuous but not differentiable functions

Ddoes provide an error bound along with every iteration

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Correct Answer: B

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