22. Which one of the following is the correct formula for approximating the chan

Question

22. Which one of the following is the correct formula for approximating the change in an option's value given a small change in the value of the underlying stock? a. Change in option value Change in stock value/ Delta b. Change in option value Change in stock value/(1 - Delta) c. Change in option value Change in stock value/(1+ Delta) d. Change in option valueChange in stock value ( Delta) e. Change in option value Change in stock value Delta 23. An increase in the price of the underlying stock L decreases the value of a call. , increases the value of a call IIL decreases the value of a put increases the value of a put. a. I and III only b. I and IV only c. II and III only d. II and IV only e. I only

Explanation / Answer

22) Delta = change in price of asset/ change in price of it's derivative

thus change in price of derivative= Change in price of asset/Delta

Thus ans a)

23) An increase in price of underlying stock will increase prices of call option and decreases prices of put option

thus ans C) II and III only

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