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f3final - Math 623(IOE 623 Fall 2003 Final exam Name...

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Math 623 (IOE 623), Fall 2003: Final exam Name: Student ID: This is a closed book exam. The only notes you may bring must be written on a 3x5” card (both sides). You may use a calculator but not its memory function. Please write all your solutions in this exam booklet (front and back of the page if necessary). Keep your explanations concise (as time is limited) but clear. State explicitly any additional assumptions you make. Time is counted in years, prices in USD, and all interest rates are continuously compounded unless otherwise stated. You are obliged to comply with the Honor Code of the College of Engineering. After you have completed the examination, please sign the Honor Pledge below. A test where the signed honor pledge does not appear may not be graded. I have neither given nor received aid, nor have I used unauthorized resources, on this examination . Signed: 1
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(1) Explain briefly the difference and relation between the concepts implied volatility surface and local volatil- ity surface . You do not need to derive any complicated equations relating the two.
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