The Lambda of an Option Is Defined As

question 3

Multiple Choice

The Lambda of an option is defined as:

• A) expected change in the option premium for a small change in time to expiration.
• B) expected change in the option premium for a small change in volatility.
• C) expected change in the option premium for a small change in the spot rate.
• D) expected change in the option premium for a small change in the domestic interest rate.

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Definitions:

Convertible Bonds

Bonds issued by a corporation that can be converted into a predetermined number of the company's shares at certain times during the bond's life, usually at the discretion of the bondholder.

Bond Yields

The return an investor realizes on a bond, calculated as the annual interest payment divided by the bond's current market price.

Term Structure

The relationship between interest rates (or yields) and different maturities of debt securities, often depicted as a curve.

U.S. Treasuries

Debt securities issued by the U.S. Department of Treasury used to finance government spending as an alternative to taxation.