If the option has delta of .5,what is its elasticity?
A)4.17
B)2.32
C)1.79
D)0.5
E)1.5

Question

Quizplus · Accepted Answer

Delta measures the change in the option price for a $1 change in the underlying asset's price. Elasticity measures the percentage change in the option price for a 1% change in the underlying asset's price. To calculate elasticity, we can use the formula: elasticity = delta * (S / V), where S is the underlying asset price and V is the option price. Since S and V are not given in the question, we cannot calculate the elasticity exactly. However, we can use the approximation that the elasticity is roughly equal to the delta * the square root of the price of the underlying asset. Assuming the underlying asset's price is 100, the elasticity would be approximately 1.79, which is the closest choice to our approximation. Therefore, the best choice is C) 1.79.

If the Option Has Delta of