Which of the following is true regarding option pricing:
A)the longer the maturity of the option,the higher the premium.
B)the more volatile the underlying stock,the lower the premium.
C)option prices are less volatile than equity prices.
D)the shorter the maturity of the option,the higher the premium.

Question

Quizplus · Accepted Answer

The longer the maturity of the option, the higher the premium since time value is one component of option pricing.

Answer: C
 Option prices are less volatile than equity prices since options prices are derived from the underlying stock's price movement but with less exposure to risk.

Therefore, the correct answers are A and C.

Which of the Following Is True Regarding Option Pricing