3. Consider the six influences on call and put options valuation – asset price,

Question

3. 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

call option price put option price asset price increases increases decreases strike price decreases increases time to expiration increases decreases decreases risk free rate of return increases decreases dividend decreases increases assets volatality increases increases

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