Theta in the Black- Scholes formula measures:
A) the change in the option value caused by a change in the volatility of the security price.
B) the effect of time to expiry on the option premium.
C) the impact of the interest rate on the option premium.
D) the effect of the security return on the value of the option.

Question

Quizplus · Accepted Answer

Theta measures the sensitivity of the option's price to the passage of time, indicating how the option's value decreases as it approaches its expiration date.

Theta in the Black- Scholes Formula Measures