Variables Affecting Option Price
Not what you're looking for?
Applying the following matrix, state whether the variable would increase or decrease the value of the call or put, keeping all other variables constant. Arrows imply increasing or decreasing the value of the variable. DISCUSS YOUR REASONING FOR EACH VARIABLE.
Variable Call Value Put Value
Stock price (↑) Increase Decrease
Exercise price (↓) Increase Decrease
Volatility (↑) Increase Increase
Time to expiration (↓) Decrease Decrease
Interest rates (↑) Increase Decrease
see attached
Purchase this Solution
Solution Summary
The effect of variables -stock price, exercise price, volatility, time to expiration, interest rates on call and put value
Solution Preview
Please see the answers in the attached file.
Discussion Question
Option Pricing Variables
Applying the following matrix, state whether the variable would increase or decrease the value of the call or put, keeping all other variables constant. Arrows imply increasing or decreasing the value of the variable. DISCUSS YOUR REASONING FOR EACH VARIABLE.
Variable Call Value Put Value
Stock price (↑) Increase Decrease
Exercise price (↓) Increase Decrease
Volatility (↑) Increase Increase
Time to expiration (↓) Decrease Decrease
Interest rates (↑) Increase Decrease
Value of option = Intrinsic Value + Time Value
Options have Intrinsic Value and Time Value. Intrinsic value is the value of an option if it is exercised now. Intrinsic value is actual difference between ...
Purchase this Solution
Free BrainMass Quizzes
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.