Asked by Leslie Alaniz on May 02, 2024
Verified
As the underlying stock's price increased, the call option valuation function's slope approaches
A) zero.
B) one.
C) two times the value of the stock.
D) one-half the value of the stock.
E) infinity.
Call Option Valuation
The process of determining the value of a call option, which gives the holder the right, but not the obligation, to buy an asset at a specified price within a specific time frame.
Slope Approaches
Techniques used to determine the direction and rate of change in data, often applied in statistical and economic models.
Stock's Price
The current market value at which a share of a particular stock can be bought or sold.
- Comprehend the determinants affecting the pricing and valuation of options.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
B
Explanation :
As the underlying stock's price increases significantly, the delta of a call option (which measures the rate of change of the option's price with respect to the stock's price) approaches one. This means the option's price will move almost one-for-one with the stock's price.
Learning Objectives
- Comprehend the determinants affecting the pricing and valuation of options.