Time value of American option represents the value of keeping option alive and waiting till a later time to exercise so as to better off. O True O False
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- Real Options & Game Theory: The value of a call option and a put option is influenced by the following variables: - Underlying asset value- Strike Price- Variance of Underlying asset- Time to Expiration What effect would an increase in each of these variables have on the value of a calloption and a put option?Option Price and Interest Rates Suppose the interest rate on T-bills suddenly andunexpectedly rises. All other things being the same, what is the impact on call option values? Onput option values?Which of the following best describes the intrinsic value of an option? The Black-Scholes-Merton price of the option The value it would have if the owner had to exercise it immediately or not at all The amount paid for the option The lower bound for the option’s price
- Define a call option’s exercise value. Why is the market price of acall option always above its exercise value?Which of the following will NOT increase the value of a real (call) option? Group of answer choices: A decrease in the probability that a competitor will enter the market of the project in question. An increase in the risk-free rate A decrease in the cost of obtaining the real option Lengthening the time in which a real option must be exercised. A decrease in the volatility of the underlying source of risk.The value of an option at expiration is its _______. a. time value b. strike price c. premium d. intrinsic value Please answer fast i give you upvote.
- Black-Scholes Model Assume that you have been given the following information on Purcell Industries call options: According to the Black-Scholes option pricing model, what is the option’s value?A European call option has a strike price of K and maturity of T. If the stock price at the maturity is ST, what is the payoff from a short position in this call option (without considering the option price)? Group of answer choices: Max(K - ST, 0) -Max(ST - K, 0) -Max(K - ST, 0) Max(ST - K, 0)Explain why the following statement is true: In general, the more uncertainty thereis about future market conditions, the more attractive an investment timing optionwill be, other things held constant.
- If the time to expiration falls and the put price rises, then what has happened to the put option’s implied volatility?My question is for a synthetic call option why do we need to borrow the present value of the strike price and what does it mean in a simple language explanation. Similarly why do we need to lend the present value of the stock at risk-free rate and what does it mean in simple language explanation? Please also clarify the significance of risk free rate? Why is it used in put call parity. Synthetic Call Option: If an investor believes that a call option is over-priced, then he/she can sell the call on the market and replicate a synthetic call. Borrow the present value of the strike price at the risk free rate and purchase the underlying stock and a put. Synthetic Put Option: Similar to the synthetic call option. A synthetic put can be created by re-arranging the put-call parity relationship, if the trader believes the put is overvalued. Synthetic Stock: A synthetic stock can also be created by rearranging the put-call parity identity. In this case, the investor will buy the…The price level you choose for price protection on a call option is referred to as: A. The strike price B. The option premium C. The time value D. The intrinsic value
