Since the Black-Scholes-Merton Model Is Rejected When Using Historical Volatilities

question 14

Multiple Choice

Since the Black-Scholes-Merton model is rejected when using historical volatilities as input:

• A) using implied volatilities transforms the BSM theoretical model into a statistical model
• B) implied volatilities enable one to accept the BSM theoretical model
• C) one needs to use implied volatilities to delta-hedge an option
• D) one needs to use implied volatilities to vega-hedge an option
• E) one needs to use implied volatilities to both delta- and gamma-hedge an option

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Definitions:

Archetypes

Jung’s term for emotionally laden ideas and images in the collective unconscious that have rich and symbolic meaning for all people.

Birth Order

The chronological order of sibling births, which is believed to influence their personality and psychological development.

Adler

Refers to Alfred Adler, an Austrian psychiatrist known for his development of individual psychology, emphasizing the importance of feelings of inferiority and societal contributions.

Psychological Disorder

A pattern of behavioral, cognitive, or physical symptoms that cause significant distress, impair daily functioning, or both.