Holding everything else equal, the increase in the volatility (variance) of the underlying stock will cause  A.value of a put option decreases and that of a call option increases. B.value of both a put option and a call option increase. C.value of a put option increases and that of a call option decreases. D.value of both a put option and a call option decreas

If the liquidity preference hypothesis is true, what shape should the term structure curve have in a period where interest rates are expected to be constant?a. Upward sloping.b. Downward sloping.c. Flat.

Tick all those statements on options that are correct (and don't tick those statements that are incorrect). B a. The Black-Scholes formula is based on the assumption that the share price follows a geometric Brownian motion. b. If interest is compounded continuously then the put-call parity formula is P+ S(0) = C + Ker where T is the expiry time. An American put option should never be exercised before the expiry time. d. In general the equation S(T) +(K-S(T)) = (S(T)-K)+ +K is valid. e. The put-call parity formula necessarily requires the assumption that the share price follows a geometric Brownain motion. C.

Consider the model of Black and Scholes. Consider the cash=or-nothing put option V (T) = 1{S(T)<= K} It pays out one unit of cash if the spot is below the strike at maturity. Evaluate the price of the option.