3.1 Dynamically hedging a short position in a call option:

a. Is guaranteed to save you money

b. Results in a reduced volatility of the gain / loss

c. Is more likely to save you money when the option expires out-of-the-money

3.2 In the Black-Scholes option pricing model, N(d1) is the probability that a standard normal random variable takes on a value exceeding d1. (True / False)

3.3 In the Black-Scholes option-pricing model, if volatility increases, the value of a call option will increase but the value of the put option will decrease. (True / False)

3.4 In the Black-Scholes option pricing model, value of an option decreases, all else equal, as it nears expiration. (True / False)

3.5 The Black-Scholes option pricing model assumes which of the following?

1. Jumps in the underlying price
2. Constant volatility of the underlying
3. Possibility of negative underlying price
4. Interest rate increasing as option nears expiration

3.6 Which statement is correct regarding the delta of a put option?

a. Delta is positive

b. In absolute value, delta < 1

c. Delta doesnt change with the underlying stock price

d. Delta is higher in absolute value when the put option is out-of-the-money (stock is high)