Introduction to Risk Management

Question 1

The sensitivity of the derivative price to a small change in the value of the underlying asset is called the ______.

Answer 1

delta

Question 2

Whereas ____ is a first- order risk, ____ is considered a second- order risk because it reflects the risk of changes in ____.

Answer 2

delta, gamma, delta

Question 3

___ is a first-order measure of the change in the derivative price for a change in the volatility of the underlying.

Answer 3

Vega

Question 4

Derivatives are also sensitive to changes in interest rates, which
are reflected in a measure called ____.

Answer 4

rho

Question 5

Two measures in particular that are often used to complement VaR are _______ and ________.

Answer 5

scenario analysis, stress testing

Question 6

Whereas _______ refers to actions taken that pass the risk on to other parties, ______ refers to actions that change the distribution of risk outcomes. Risk transfer is often associated with ________, whereas risk shifting generally involves _______ as the risk modification vehicle

Answer 6

risk transfer, risk shifting

insurance, derivatives