Purchase Solution

Variables Affecting Option Price

Not what you're looking for?

Ask Custom Question

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)

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Introduction to Finance

This quiz test introductory finance topics.