The five parameters making up the value drivers for options can be reduced to two summary parameters: A) NPV_q and option value. B) NPV_q and cumulative volatility. C) cost of exercise and cumulative volatility. D) time of exercise and option value.

Question

Quizplus · Accepted Answer

The two summary parameters that capture the five value drivers for options are net present value of the strike price and underlying asset price in the up and down states (denoted as NPV_q) and cumulative volatility. These two parameters provide a simplified way to understand the key factors that drive option pricing. The other answer choices do not accurately reflect the parameters that summarize the value drivers for options.

The Five Parameters Making Up the Value Drivers for Options