FIA Derivatives & Risk Products 2

Question 1

Which Greek measures the rate of change of an option's delta with respect to the underlying asset's price?

Accepted Answer

Gamma

Answer

Gamma measures how much delta changes for a $1 move in the underlying, indicating the curvature of the option's value.

Question 2

A basis swap involves the exchange of:

Accepted Answer

Two different floating rate indices

Answer

A basis swap exchanges floating rate payments based on two different reference rates, such as SOFR vs. T-bill rate.

Question 3

What does the 'notional principal' in a swap contract represent?

Accepted Answer

The reference amount used to calculate interest payments

Answer

Notional principal is a reference figure used to compute swap cash flows; it is not actually exchanged between the parties.

Question 4

A variance swap pays the holder based on the difference between:

Accepted Answer

Realized variance and a fixed strike variance

Answer

A variance swap settles on the difference between realized variance over the period and the pre-agreed strike variance.

Question 5

Under the Black-Scholes model, which input does NOT directly affect the theoretical price of a European call option?

Accepted Answer

The stock's historical trading volume

Answer

Black-Scholes uses price, volatility, time, risk-free rate, and dividends — historical volume is not an input.

(FIA) Financial Information Associate Certification Practice Test