Call option values INCREASE with ______.
A) an increase in the exercise price
B) an increase in the volatility of the underlying asset value
C) an increase in the systematic risk (beta) of the asset underlying the option
D) More than one of the above
E) None of the above

Question

Quizplus · Accepted Answer

Call option values increase with an increase in the volatility of the underlying asset value, as higher volatility increases the likelihood of the asset appreciating in value above the exercise price, leading to a higher potential payoff for the option holder. An increase in the exercise price would decrease the option value, while an increase in systematic risk (beta) may have varied effects depending on the specific circumstances.

Call Option Values INCREASE with ______