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1. Which of the following can be used to evaluate a regression model?
(i) Magnitude of R2
(ii) Magnitude of TSS (total sum of squares)
(iii) Tests for statistical significance
(iv) Sign and magnitude of each regression parameter
A) (i), (ii), (iii), and (iv)
B) (i) and (iv)
C) (i), (iii), and (iv)
D) (i), (ii), and (iii)
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%?
A) 10
B) 100
C) 5
D) 25
3. Which of the following is not a direct cause of autocorrelation or heteroskedasticity in the residuals of a regression model?
A) A structural break in the dependent variable
B) The omission of a relevant explanatory variable
C) A high positive correlation between two explanatory variables
D) Using an inappropriate functional form in the model
4. Suppose I trade an option and I wish to hedge that option for delta and vega. Another option is available to trade. To complete the hedge I would
A) trade the other option in such a way as to make the portfolio delta and vega neutral.
B) trade the other option in such a way as to make the portfolio vega neutral, and then trade the underlying in such a way as to make the portfolio delta neutral.
C) trade the underlying in such a way as to make the portfolio delta neutral, and then trade the other option in such a way as to make the portfolio vega neutral.
D) trade the underlying in such a way as to make the portfolio delta and vega neutral.
5. What is the 40th term in the following series: 4, 14, 30, 52, ...?
A) 4840
B) 4598
C) 240
D) 4960
Solutions:
| Question # 1 Answer: C | Question # 2 Answer: A | Question # 3 Answer: C | Question # 4 Answer: B | Question # 5 Answer: A |
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