Consider the six influences on call and put options valuation – asset price, exe
ID: 2654143 • Letter: C
Question
Consider the six influences on call and put options valuation – asset price, exercise or strike price, time to expiration, risk free rate of return, dividend or income yield, and asset volatility. Which of the six, when increasing, raises the market price of a call option on the same asset and which, when increasing, decreases this call’s market price? Which of the six, when increasing, raises the market price of a put option on the same asset and which, when increasing, decreases this put’s market price?
Explanation / Answer
Variable Call option market price increases when Put option market price increases when Asset price Increase Decrease Stricke price Decrease Increase Time to expiration Increase Increase Risk free rate of return Increase Decrease Dividend Decrease Increase Asset volatility Increase Increase