PRM Certification 8006 Updated Exam

Short calls and short puts have negative gamma, ie their delta increases at a decreasing rate as the price of the underlying change. Likewise, remember that long calls and long puts have positive gamma.

As a bond approaches maturity, its value will be driven less by the time value of money or its coupons, and more by its redemption value, ie the par. Therefore as maturity approaches, its value converges to its par value and this phenomenon is called pull to par.

All the choices list inputs into the determination of futures prices. Therefore volatility in any of them affects the volatility of futures prices. Of course, the largest contributor to the volatility is the volatility of the spot price of the underlying. Choice 'd' is the correct answer.