Asked by Kylyah Mercurius on Jul 21, 2024
Verified
The elasticity of a stock put option is always
A) positive.
B) smaller than one.
C) negative.
D) infinite.
Elasticity
A measure of how much the demand or supply of a product changes in response to a change in price.
Stock Put Option
A financial contract giving the buyer the right, but not the obligation, to sell a stock at a specified price within a certain time frame.
- Understanding the mathematical correlations among variables in option pricing, such as the functions of the hedge ratio, gamma, and elasticity.
Verified Answer
JC
Justis CoventryJul 26, 2024
Final Answer :
C
Explanation :
The elasticity of a stock put option is negative because the value of the put option increases as the stock price decreases, which is an inverse relationship. Elasticity measures the responsiveness of one variable to changes in another variable, and in the case of put options, the value of the option moves inversely to the price of the underlying stock.
Learning Objectives
- Understanding the mathematical correlations among variables in option pricing, such as the functions of the hedge ratio, gamma, and elasticity.