Exam 16: Option Contracts

A put option has a price of $1.50,with exercise price of $14.00 and underlying asset price of $12.00.If the time to maturity is 30 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

All else the same,an American style option will be ______ valuable than a ______ style option.

For a call option,the rate of increase in the share price is 2%,while the rate of decrease in the share price is 1%.If the share price increases,the call price is $10.10,while the call price will be $9.95 if the share price decreases.Given this information,and that the asset price is currently $10.00 and the risk-free rate is 5% p.a. ,calculate the risk-free hedge ratio.

The difference between the exercise price and the underlying asset price is called the:

An American option can only be exercised on the expiration date.

The writer of a put option _______________.

A put option has a price of $2.50 with exercise price of $14.00 and underlying asset price of $12.00.If the time to maturity is 30 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

A call option has a price of $4.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

In relation to hedging when the short futures position is combined with the long asset position,the net effect is that wealth is not altered with changes in price.

The __________ with shorter time to expiry may have greater value than otherwise identical options.

The 'volatility smile' behaviour of options documented by Rubinstein (1985)suggests that implied volatility increases with the difference between the current asset price and the exercise price.

A combination of purchasing a call and put option with the same exercise price and time to expiry is called:

Assume an option with a price of $4.10 and current pay-off,if exercised today of $0.65.Given a risk-free rate of 5%,the time value of the option now is:

In general,most Australian exchange-traded options have no protection against dividends.

A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of 14.00 p.a.is valued at $2.24.If the put option with these characteristics is trading at $0.06,at what risk-free rate will put-call parity hold? (Assume the call option premium is correctly priced and there are no dividends. )

A put option with 60 days to maturity,exercise price of $12.00,underlying spot price of 14.00 and risk-free rate of 7% p.a.is valued at $0.10.What is the value of a call option with the same characteristics? (Assume the put option premium is correctly priced and there are no dividends. )

The premium of an American put option is generally greater than that of the European put option because:

A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of $14.00 and risk-free rate of 7% p.a.is valued at $2.20.What is the value of a put option with the same characteristics? (Assume the call option premium is correctly priced and there are no dividends. )

Which of the following factors affects the price of an option?

Using the Black-Scholes model,the delta of a call option is: