Interview Questions # 9: Quantitative Modelling and Analytics
Team Latte Nov 07, 2007

If is the characteristic function for where S is the stock price such that , where and is the probability density function for K, then the expression for risk neutral probability that a call option finishes in the money :
 None of the above
One of the most widely used generalized quadratic functions to model implied volatility as a function of moneyness, K and maturity, T is:
 None of the above
The chief advantage of Heston (1993) stochastic volatility model is/are:
 It yields a closed form solution and can take into account the correlation between asset price and asset volatility;
 It models the variance in a GARCH framework;
 It yields a closed form solution and models variance in a GARCH framework;
 It can model the autocorrelation of the asset returns;
If S is the asset price and B is the barrier, then in an adaptive mesh model (using trinomial tree) to price barrier options, the price increments are given by:
If the determinant of a correlation matrix is a negative number then the correlation matrix is nonsensical because:
 All eigenvalues of the correlation matrix are negative;
 the Cholesky matrix for the correlation matrix does not exist;
 the correlation matrix cannot be inverted;
 the correlation matrix is singular;
Answers:
1 (b)
2 (b) 3 (a)
4 (d)
5 (b)
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