All else equal, the value of an option increases with an increase in the variance of returns in the underlying asset.

Name: All else equal, the value of an option increases with an increase in the variance of returns in the underlying asset.
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Question

Quizplus · Accepted Answer

The value of an option is affected by various factors, including the volatility of the underlying asset. As the volatility increases, there is a higher probability of the option ending up in-the-money, leading to a higher value.

All Else Equal, the Value of an Option Increases with an Increase