The Value of an Option to Purchase a Stock Index

question 29

True/False

The value of an option to purchase a stock index futures contract depends on the outlook of the futures contract.

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Definitions:

Frequency

In general terms, it refers to how often something occurs within a specific interval or context, such as the number of repetitions of a wave per second in physics.

Expected Utility Theory

A normative model of decision making in which the decision maker weighs the personal importance and probabilities of different outcomes in choosing among alternatives in order to maximize overall satisfaction of personal goals.

Prescriptive

Relating to the imposition or enforcement of rules, norms, or recommendations, often in a directive way.

Normative Models

theoretical models that prescribe how people should behave or make decisions, often based on optimal outcomes or rational choice theory.