In the Black-Scholes Option Pricing Model, an Increase in Security $\sigma$

question 87

Multiple Choice

In the Black-Scholes option pricing model, an increase in security volatility ( $\sigma$ ) will cause

• A)An increase in call value and an increase in put value
• B)An increase in call value and a decrease in put value
• C)A decrease in call value and an increase in put value
• D)A decrease in call value and a decrease in put value
• E)An increase in call value and an increase or decrease in put value

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Definitions:

Base Year

A specific year against which economic indices are measured or compared, allowing for the assessment of economic performance or inflation.

CPI

The Consumer Price Index tracks the average variation in prices that urban buyers pay for a selection of consumer products and services over time.

Bureau Of Labor Statistics

A U.S. government agency responsible for collecting and reporting labor market activity, working conditions, and price changes in the economy.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, calculated by taking price changes for each item in the predetermined basket of goods and averaging them.