Which one of the following statements concerning the relationship between the vo

Question

Which one of the following statements concerning the relationship between the volatility of the underlying stock price, as measured by sigma, and call and put prices is correct? Select one: a. Call and put prices react fairly similarly in response to changes in sigma. b. Call prices increase and put prices decrease as sigma increases. c. Put price increase and call prices decrease as sigma increases. d. Call prices increase and put prices remain relatively constant and sigma increases. e. Neither put nor call prices are affected by changes in sigma.

Explanation / Answer

Ans: If Sigma plays an important role in in relationship since if sigma increase, both call and put price shall increase, in the same way if sigma decreased, both call and put price shall decrease.

Therefore Ans a is correct

call and put price react fairly similarly in response to change in sigma

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