Which of the following is FALSE?
A) Options are always more volatile than the assets on which they are based.
B) Returns on options are inherently non-normal.
C) Returns on options are asymmetric.
D) The volatility of an option changes with changes in the value of the underlying asset.
E) Option pricing methods discount option payoffs at a risk-adjusted discount rate.

Question

Quizplus · Accepted Answer

Option pricing methods, such as the Black-Scholes model, do not use a risk-adjusted discount rate to discount option payoffs. Instead, they use risk-neutral valuation, which assumes that all investors are risk-neutral, to calculate the present value of expected option payoffs without adjusting for risk.

Which of the Following Is FALSE