Test Your Knowledge of the Black-Scholes Model
martialdouble-t
Created 6/20/2024
Are you a quantitative finance enthusiast? Put your skills to the test with our Black-Scholes model quiz!
1. What is the Black-Scholes model primarily used for?
Pricing European options
Pricing American options
Pricing currency options
Pricing bond options
2. Which of the following is NOT an assumption of the Black-Scholes model?
No transaction costs
Constant dividends
Log-normal asset prices
Market movements are random
3. Who were the primary developers of the Black-Scholes model?
Fischer Black and Myron Scholes
Robert Merton and Myron Scholes
Fischer Black and Robert Merton
Robert Merton and John Cox
4. Which input is NOT required for the Black-Scholes model?
Volatility
Option's type
Option's strike price
Dividend yield
5. Which equation is central to the Black-Scholes model?
Black-Scholes equation
Binomial equation
Monte Carlo equation
Delta-Gamma equation
6. What significant impact did the Black-Scholes model have on finance?
Development of futures markets
Development of fixed income products
Expansion of options trading
Introduction of ETFs
7. What does the Black-Scholes model assume about volatility?
It changes continuously
It remains constant
It follows market trends
It is normally distributed
8. Who published the first academic paper on the Black-Scholes model?
Robert Merton
Fischer Black
Myron Scholes
William Sharpe
9. Which of the following is a limitation of the Black-Scholes model?
It can't price European options
It assumes constant risk-free rate
It includes transaction costs
It covers all types of options
10. What is implied volatility according to the Black-Scholes model?
Future stock price movement
Current stock price variation
Market expected volatility
Historical stock price fluctuation
11. What happens when the Black-Scholes model is applied to long-term options?
Produces stable results
Predicts negative prices
Gives absurd results
Becomes more accurate
12. What is a 'volatility skew' in the context of the Black-Scholes model?
Symmetric implied volatility
Different implied volatilities for different strike prices
Flat volatility curve
Inaccurate pricing
13. Which Nobel Prize was awarded to Scholes and Merton for their work on the Black-Scholes model?
Physics
Chemistry
Economics
Peace
14. What is the underlying concept behind delta hedging?
Eliminating dividends impact
Neutralizing risk
Speculating on price movement
Reducing transaction costs
15. Which of the following is NOT a direct application of the Black-Scholes model?
Binomial options model
Monte Carlo simulation
Brownian motion model
Stochastic volatility model
