Consider the following equation:
In this equation,the term σ represents
A) the number of days to expiration.
B) the number of years to expiration.
C) the expected return on the stock.
D) the annual volatility of the stock.

Question

Consider the following equation: 
In this equation,the term σ represents
A) the number of days to expiration. 
B) the number of years to expiration. 
C) the expected return on the stock. 
D) the annual volatility of the stock.

Quizplus · Accepted Answer

The equation given is in the format of a standard option pricing model, which includes variables such as stock price, strike price, time to expiration, risk-free interest rate, and volatility. The term σ in this equation represents the annual volatility of the stock. Therefore, the best choice is D.

Consider the Following Equation