We invite you to participate in our pop quiz where we showcase a sample question from the Risk Management Professional Certificate course. Challenge yourself with the question below!
Q. Which one of the following security combinations replicates a short forward contract with forward price F and expiration date T. Assume all contracts reference the same underlying security and all options are European.
A) A long call option and a short put option, both strike price F and expiration date T.
B) A long risk-free bond with par value F and maturity date T, and a short position in the underlying security.
C) A short call option and a short put option, both with strike price F and expiration date T.
D) A short risk-free bond with par value F and maturity date T, and a long position in the underlying security.
Answer: B) A long risk-free bond with par value F and maturity date T, and a short position in the underlying security.