Asked by Krystina Edwards on Jul 04, 2024
Verified
The value of an American call option is increased when the variance of the underlying asset increases.
American Call Option
An options contract that allows the holder to buy the underlying asset at a specified price at any time before or on the expiration date.
Variance
A statistical measure that represents the dispersion of data points in a data set around the mean, indicating how spread out the data is.
- Explain the valuation principles of American call options and factors affecting their value.
Verified Answer
AB
amanpreet bhinderJul 10, 2024
Final Answer :
True
Explanation :
An increase in the variance (volatility) of the underlying asset increases the potential for the asset's price to move favorably for the holder of a call option, thus increasing the option's value.
Learning Objectives
- Explain the valuation principles of American call options and factors affecting their value.