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NEW QUESTION: 1
Which of the following statements are true:
I. Implied volatility refers to volatility estimates made by risk managers for their VaR calculations II. Implied volatility is generally observed to be constant across strikes and expiries, as otherwise we would have riskless arbitrage possible.
III. Volatility smile refers to the shape of the implied volatility curve across different strike prices IV. An option portfolio cannot have negative theta
A. I and III
B. III and IV
C. I, II and IV
D. III
Answer: D
Explanation:
Explanation
Implied volatility is the volatility that is priced in the current market prices. In other words, we know the formula for pricing an option, and we find the value of the volatility for which we get the current market price.
It is the volatility that the market is ascribing to that security. Therefore statement I is not correct.
Implied volatility in the market tends to vary across strikes, even with the same underlying. There is a certain level of demand for out of the money puts, for example, from investors trying to set a floor for their losses. At the same time, there is a natural supply of out of the money calls from investors trying to earn some relatively risk free premiums. These factors cause options with different strikes to be priced in a way as to give different estimates of market volatility at each strike *& resulting in the 'volatility smile'). Therefore statement II is not correct.
The shape of the implied volatility curve is called the 'volatility smile', because of the shape it sometimes takes. Statement III is correct.
Theta is the rate of change of an option's price with the passage of time. It causes the value of the option to decrease over time, such that if it is out of the money and close to expiry, the price of the option approaches zero. Theta is therefore negative by definition. Statement IV is not correct. Remember that theta will be positive for short positions.

NEW QUESTION: 2
If an internal database holds a number of printers in every department and this equals the total number of printers for the whole organization recorded elsewhere in the database, it is an example of:
A. Referential consistency of the information system.
B. Internal consistency of the information system.
C. External consistency of the information system.
D. Differential consistency of the information system.
Answer: B
Explanation:
Internal consistency ensures that internal data is consistent, the subtotals match the total number of units in the data base. Internal Consistency, External Consistency, Well formed transactions are all terms related to the Clark-Wilson Model.
The Clark-Wilson model was developed after Biba and takes some different approaches to protecting the integrity of information. This model uses the following elements:
Users Active agents
Transformation procedures (TPs) Programmed abstract operations, such as read, write, and modify
Constrained data items (CDIs) Can be manipulated only by TPs
Unconstrained data items (UDIs) Can be manipulated by users via primitive read and write operations
Integrity verification procedures (IVPs) Check the consistency of CDIs with external reality Although this list may look overwhelming, it is really quite straightforward.
When an application uses the Clark-Wilson model, it separates data into one subset that needs to be highly protected, which is referred to as a constrained data item (CDI), and another subset that does not require a high level of protection, which is called an unconstrained data item (UDI).
Users cannot modify critical data (CDI) directly. Instead, the subject (user) must be authenticated to a piece of software, and the software procedures (TPs) will carry out the operations on behalf of the user. For example, when Kathy needs to update information held within her company's database, she will not be allowed to do so without a piece of software controlling these activities. First, Kathy must authenticate to a program, which is acting as a front end for the database, and then the program will control what Kathy can and cannot do to the information in the database.
This is referred to as access triple: subject (user), program (TP), and object (CDI). A user cannot modify CDI without using a TP. Well Formed Transactions A well-formed transaction is a series of operations that are carried out to transfer the data from one consistent state to the other. If Kathy transfers money from her checking account to her savings account, this transaction is made up of two operations: subtract money from one account and add it to a different account. By making sure the new values in her checking and savings accounts are accurate and their integrity is intact, the IVP maintains internal and external consistency.
The Clark-Wilson model also outlines how to incorporate separation of duties into the architecture of an application. If we follow our same example of banking software, if a customer needs to withdraw over $ 10,000, the application may require a supervisor to log in and authenticate this transaction. This is a countermeasure against potential fraudulent activities.
The model provides the rules that the developers must follow to properly implement and enforce
separation of duties through software procedures.
The following answers are incorrect:
External consistency of the information system. External consistency is were the data matches the
real world. If you have an automated inventory system the numbers in the data must be consistent
with what your stock actually is.
The other answers are distractors.
Reference(s) used for this question:
Harris, Shon (2012-10-25). CISSP All-in-One Exam Guide, 6th Edition (Kindle Locations 8146-
8159). McGraw-Hill. Kindle Edition.
and
Harris, Shon (2012-10-25). CISSP All-in-One Exam Guide, 6th Edition (Kindle Locations 8188-
8195). McGraw-Hill. Kindle Edition.
and
Harris, Shon (2012-10-25). CISSP All-in-One Exam Guide, 6th Edition, Security Architecture and
Design Ch 4, Pg, 374-376 AIO 6th Edition. McGraw-Hill.

NEW QUESTION: 3

A. Option D
B. Option C
C. Option E
D. Option A
E. Option B
Answer: A,D