If the price of an underlying asset has a standard deviation of zero:
A) options for this asset would likely not exist.
B) option for this asset would be highly valued.
C) the intrinsic value of options for this asset would equal the asset's price.
D) options for this asset would have a time value of the option equal to the price of the asset.

Question

Quizplus · Accepted Answer

If the price of an underlying asset has a standard deviation of zero, it means there is no volatility in the asset's price. Options pricing is heavily dependent on volatility; without it, there's little uncertainty or risk to hedge against, making options less necessary or valuable. Therefore, options for such an asset would likely not exist or be very uncommon, as the primary purpose of options is to hedge against price volatility.

If the Price of an Underlying Asset Has a Standard