A Volatility Swap Is an Option on the Realized Standard

question 12

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:

State Excise Tax

Taxes imposed by a state on particular goods or activities, such as alcohol, cigarettes, and gasoline.

Federal Excise Tax

A tax imposed by the federal government on the sale of certain goods and services, such as gasoline, alcohol, and tobacco.

Efficiency Loss

The loss of economic efficiency that can occur when the balance between supply and demand is not achieved or when market conditions lead to a misallocation of resources.

Marginal Benefit

The additional satisfaction or utility gained by consuming or producing one more unit of a good or service.