FRM 2026 Part I Valuation and Risk Models Volatility Models Free Quiz 2

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FRM 2026 Part I Valuation and Risk Models Volatility Models Free Quiz 2

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FRM 2026 Part I Valuation and Risk Models Volatility Models Free Quiz 2

Practice FRM 2026 Part I Valuation and Risk Models MCQs from Volatility Models. Get instant results with Explanation.

General10 MCQs

1. What is implied volatility?

A. Implied volatility is derived from option market prices and reflects market expectationsB. Implied volatility is the same as historical volatilityC. Implied volatility is constant for all optionsD. Implied volatility is not used in practice

2. What is the Heston model?

A. The Heston model assumes constant volatilityB. The Heston model is a GARCH modelC. The Heston model is not used for option pricingD. The Heston model is a stochastic volatility model with mean-reverting variance

3. What is the SABR model?

A. SABR is a GARCH modelB. SABR is a stochastic volatility model used for interest rate derivativesC. SABR is not used in practiceD. SABR assumes constant volatility

4. How is volatility forecasted?

A. Volatility cannot be forecastedB. Only historical volatility is used for forecastingC. Volatility can be forecasted using GARCH, implied volatility, and other modelsD. Volatility forecasts are always accurate

5. What is risk-neutral volatility?

A. Risk-neutral volatility is derived from option prices and may differ from physical volatilityB. Risk-neutral volatility is the same as historical volatilityC. Risk-neutral volatility is not used in pricingD. Risk-neutral volatility is constant

General10 MCQs

6. What is the volatility risk premium?

A. The volatility risk premium is always zeroB. The volatility risk premium is negative on averageC. The volatility risk premium is the same as the equity risk premiumD. The volatility risk premium is the difference between implied and realized volatility, positive on average

7. What is the advantage of using high-frequency data for volatility estimation?

A. High-frequency data is not used for volatility modellingB. Realized volatility from high-frequency data improves volatility estimatesC. Realized volatility is the same as implied volatilityD. High-frequency data is too noisy for volatility modelling

8. What is the volatility of volatility?

A. Volatility of volatility is not important for option pricingB. Volatility of volatility is constant in all modelsC. Volatility of volatility is a parameter in stochastic volatility models and affects option pricesD. Volatility of volatility is not used in practice

9. How are GARCH models estimated?

A. GARCH models are estimated using maximum likelihood estimationB. GARCH models are estimated using OLSC. GARCH models do not require estimationD. GARCH models are estimated using Bayesian methods only

10. What is volatility persistence in GARCH models?

A. Persistence is the ARCH coefficientB. Persistence is the GARCH coefficientC. Persistence is the difference between ARCH and GARCH coefficientsD. Persistence is the sum of ARCH and GARCH coefficients; close to 1 indicates high persistence

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FRM

Conducting Body: Global Association of Risk Professionals GARP

Frequency: three times a year: May, August, and November | Time: 240 Minutes

Negative Marking: No

⚡ Test Pattern (Total: 100 MCQs):

Foundations of Risk Management: 25 MCQs
Quantitative Analysis: 25 MCQs
Financial Markets and Products: 25 MCQs
Valuation and Risk Models: 25 MCQs

Merit Formula: -

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