1. Two calls have the same delta but call A has a higher gamma than call B. For the same price increase in the underlying stock, the delta hedge adjustment in the underlying stock position for each short call A, compared to that for each short call B, requires to
A. purchase more shares.
B. purchase less shares.
C. sell a larger number of shares.
D. sell a smaller number of shares.
2. Which of the following is least accurate regarding the limitations of the Black-Scholes-Merton (BSM) model? The BSM is not useful in
A. providing market concensus on expected volatility of the underlying.
B. pricing options when the short-selling and borrowing at the risk-free rate is constrained.
C. situations where the volatility of the underlying asset changes over time.
D. pricing options on bonds and interest rates.