Question #65
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 30
Status: Unattempted
Correct Answer: A
Question
For a change in which of the following inputs into the Black-Scholes-Merton option pricing model will the direction of the change in a put's value and the direction of the change in a call's value be the same?
Answer Choices:
A. Volatility
B. Exercise price
C. Risk-free rate
Explanation
A decrease/increase in the volatility of the price of the underlying asset will
decrease/increase both put values and call values. A change in the values of the other
inputs will have opposite effects on the values of puts and calls.