Exam 21: Option Valuation

Portfolio A consists of 500 shares of stock and 500 calls on that stock. Portfolio B consists of 800 shares of stock. The call delta is 0.6. Which portfolio has a higher dollar exposure to a change in stock price?

Portfolio A consists of 400 shares of stock and 400 calls on that stock. Portfolio B consists of 500 shares of stock. The call delta is 0.5. Which portfolio has a higher dollar exposure to a change in stock price?

Other things equal, the price of a stock put option is positively correlated with the following factors except

A hedge ratio of 0.70 implies that a hedged portfolio should consist of

Use the two-state put-option value in this problem. S_O = $100; X = $120; the two possibilities for S_T are $150 and $80. The range of P across the two states is _____, and the hedge ratio is _______.

Portfolio A consists of 150 shares of stock and 300 calls on that stock. Portfolio B consists of 575 shares of stock. The call delta is 0.7. Which portfolio has a higher dollar exposure to a change in stock price?

The intrinsic value of an in-of-the-money call option is equal to

The gamma of an option is

Rubinstein (1994) observed that the performance of the Black-Scholes model had deteriorated in recent years, and he attributed this to

At expiration, the time value of an at-the-money put option is always

A portfolio consists of 800 shares of stock and 100 calls on that stock. If the hedge ratio for the call is 0.5, what would be the dollar change in the value of the portfolio in response to a $1 decline in the stock price?

A put option on the S&P 500 Index will best protect a portfolio

Volatility risk is

Options sellers who are delta-hedging would most likely

Empirical tests of the Black-Scholes option pricing model

A put option has an intrinsic value of zero if the option is

Lower dividend-payout policies have a __________ impact on the value of the call and a __________ impact on the value of the put compared to higher dividend-payout policies.

At expiration, the time value of an in-the-money put option is always

The Black-Scholes formula assumes that I) the risk-free interest rate is constant over the life of the option. II) the stock price volatility is constant over the life of the option. III) the expected rate of return on the stock is constant over the life of the option. IV) there will be no sudden extreme jumps in stock prices.

The intrinsic value of an out-of-the-money call option is equal to