You’re on a roll
Create a free account to save your FRM progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › FRM › Quantitative Analysis
Free FRM Quantitative Analysis Practice Questions & Answers
400 exam-style Quantitative Analysis questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 391
The relationship between local volatility and implied volatility in the Dupire framework is:
Select an option first.
Correct answer: B — Local volatility σ_L(S,T) is calibrated from the implied volatility surface to produce a model consistent with all observed option prices simultaneously, with local vol ≈ 2× the slope of implied vol with respect to maturity at a given strike
Explanation: B
Question 392
The Heston stochastic volatility model captures:
Select an option first.
Correct answer: B — Random volatility that follows a mean-reverting square-root (CIR) process, with correlation between the volatility process and the stock price process generating an implied volatility skew
Explanation: B
Question 393
Dupire's local volatility model assumes:
Select an option first.
Correct answer: B — The underlying follows a diffusion process where volatility is a deterministic function of the current asset price and time: dS/S = μ dt + σ(S,t) dW, calibrated to match all observed option prices simultaneously
Explanation: B
Question 394
The Breeden-Litzenberger formula shows that:
Select an option first.
Correct answer: B — The second derivative of call price with respect to strike equals the risk-neutral probability density: f(K) = e^{rT} × ∂²C/∂K², allowing extraction of the entire risk-neutral distribution from option prices
Explanation: B
Question 395
Jump diffusion models (Merton, Kou) extend Black-Scholes by:
Select an option first.
Correct answer: B — Adding Poisson jumps to the geometric Brownian motion, allowing for sudden large price moves that create fat tails and better match observed return distributions and short-dated implied volatility smiles
Explanation: B
Get the full FRM question bank — free
Drop your email and we'll send you fresh FRM practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 396
The VIX index measures:
Select an option first.
Correct answer: B — A model-free estimate of expected 30-day implied volatility of the S&P 500, computed from a weighted portfolio of near-term and next-term OTM options prices using the variance swap replication formula
Explanation: B
More free FRM topics
Foundations of Risk Management400
Financial Markets and Products400
Valuation and Risk Models400
Market Risk Measurement and Management400
Credit Risk Measurement and Management400
Operational Risk and Resilience400
Liquidity and Treasury Risk Management400
Risk Management & Investment Management398
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.