Time value of American option represents the value of keeping option alive and waiting till a later time to exercise so as to better off. O True O False
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- Real Options & Game Theory: The value of a call option and a put option is influenced by the following variables: - Underlying asset value- Strike Price- Variance of Underlying asset- Time to Expiration What effect would an increase in each of these variables have on the value of a calloption and a put option?in the straddle option what is good to have an options with strike price equal, higher or less than current spot market, why?Option Price and Interest Rates Suppose the interest rate on T-bills suddenly andunexpectedly rises. All other things being the same, what is the impact on call option values? Onput option values?
- (b) What is the time value of an option? Why does an option's time value decay as the option approaches expiration?What is a REIT What are the advantages and disadvantages of REITs List and Describe the different types of REITs What is an OPTION Differentiate between a PUT and a CALL OPTION List and Describe the different types of OPTIONS What is a REPO What are the advantages and disadvantages of REPOS List and Describe the different types of REPOS What is the formula for calculating REPO RATE Define (a) Market Risk (b) Interest Rate Risk (c) Commodity Risk (d) Currency RiskBlack-Scholes Model Assume that you have been given the following information on Purcell Industries call options: According to the Black-Scholes option pricing model, what is the option’s value?
- The value of a European put option can be either directly or inversely to a. Time to expiry b. volatility of the underlyingDefine a call option’s exercise value. Why is the actual market price of a call optionusually above its exercise value?A call option that is Multiple Choice in the money out of the money has a positive intrinsic value at expiration. ↓y
- The premium on a put option is primarily a function of the difference in spot price S relative to the strike price X, the time until maturity T, and the volatility of the currency o. P = f(S-X, T, o) For each characteristic of a put option, use the table to indicate whether that would lead to a higher put option premium or a lower put option premium (all else equal). Characteristic A lower spot price relative to the strike price A shorter time before expiration A higher level of volatility for the currency Higher Put Option Premium Lower Put Option Premium When using a put option to hedge receivables in an international currency, a U.S. based MNC can lock in the receive. minimum maximum amount of dollars it willIf the time to expiration falls and the put price rises, then what has happened to the put option’s implied volatility?The premium on a call option is primarily a function of the difference in spot price S relative to the strike price X, the length of time until expiration T, and the volatility of the currency o. C = f(S-X, T, o) For each characteristic of a call option, use the table to indicate whether that would lead to a higher call option premium or a low call option premium (all else equal). Characteristic A lower spot price relative to the strike price A shorter time before expiration A higher level of volatility for the currency Higher Call Option Premium O Lower Call Option Premium When using a call option to hedge payables in an international currency, a U.S. based MNC can lock in the to obtain the needed foreign currency. maximum minimum amount of dollars needed
