A Volatility Swap Is an Option on the Realized Standard

question 18

Multiple Choice

A volatility swap is an option on the realized standard deviation of a stock's return over a defined period of time.A volatility swap may be replicated using

• A)A static position in forwards and options on the stock.
• B)A static position in stock,forwards and options.
• C)A dynamic position in forwards and options on the stock.
• D)None of the above

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Definitions:

Acceleration Clause

A provision in a loan contract that allows the lender to demand immediate repayment of the entire loan amount if certain conditions are breached.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Negotiable

Able to be transferred or endorsed to another party in exchange for money or as part of a contractual agreement.

Medium of Exchange

An intermediary instrument used to facilitate the sale, purchase, or trade of goods and services between parties.