PRMIA 8007 Exam Actual Questions

The gradient of a function f(x, y, z) = x + y2 - x y z at the point x = y = z = 1 is

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Variance reduction is:

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A 2-step binomial tree is used to value an American put option with strike 104, given that the underlying price is currently 100. At each step the underlying price can move up by 20% or down by 20% and the risk-neutral probability of an up move is 0.55. There are no dividends paid on the underlying and the discretely compounded risk free interest rate over each time step is 2%. What is the value of the option in this model?

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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:

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A 2-step binomial tree is used to value an American put option with strike 105, given that the underlying price is currently 100. At each step the underlying price can move up by 10 or down by 10 and the risk-neutral probability of an up move is 0.6. There are no dividends paid on the underlying and the continuously compounded risk free interest rate over each time step is 1%. What is the value of the option in this model?

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