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Describe the effect on a call option’s price that results from an increase in one of the following factors: Stock price Time to expiration Risk-free rate Standard deviation of stock return Support...

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Describe the effect on a call option’s price that results from an increase in one of the following factors:

  • Stock price
  • Time to expiration
  • Risk-free rate
  • Standard deviation of stock return

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Answered 60 days AfterOct 24, 2017

Solution

David answered on Dec 24 2017
33 Votes
Stock Price
There is sure connection between the call option price and stock cost. On the off chance that the stock cost rises, the call option price likewise increments in a similar way however keeping in reality that every other factor stayed same, for example, strike value, profit yield, time to expiration, volatility, etc. The same theory is also applicable for the decrease in stock price. In the event that the stock cost is $2 and the quantity of offers is 100 then the call option price will be $200 and if the stock cost increments to $3 then the call option cost will be $300.
Time to expiration
The call option price will diminish as the time to expiration comes nearer. The...
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