- CFA Exams
- CFA Level I Exam
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
- Subject 6. Option Greeks and Implied Volatility

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**CFA Practice Question**

As expiration approaches, ______

II. RHOp tends to be 0.

III. THETAc will be positive.

IV. THETAp will be negative.

V. VEGAc will be positive.

VI. VEGAp will be positive.

I. RHOc tends to be 0.

II. RHOp tends to be 0.

III. THETAc will be positive.

IV. THETAp will be negative.

V. VEGAc will be positive.

VI. VEGAp will be positive.

Correct Answer: I, II, IV, V, VI

The theta will be negative as the expiration date draws nearer. Therefore, IV is correct.

Vega is always positive for both calls and puts, so V and VI are correct.

RHOc and RHOp change as time passes, with both tending toward zero as expiration approaches. Therefore I and II are correct.

The theta will be negative as the expiration date draws nearer. Therefore, IV is correct.

Vega is always positive for both calls and puts, so V and VI are correct.

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**User Contributed Comments**
1

User |
Comment |
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moghizz |
RHOC is positive, RHOP is negative. RHOC is the real interest rate sensitivity. One goes down towards zero, and one goes up towards zero.Volatility is always positive for both calls and puts. |