Theta Measures an Option's

question 78

Multiple Choice

Theta measures an option's:

• A) intrinsic value.
• B) volatility.
• C) rate of time decay.
• D) sensitivity to changes in the value of the underlying asset.
• E) sensitivity to changes in the risk-free rate.

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Definitions:

Hidden Characteristics

Traits or features of a product or service that are not immediately observable to the buyer, potentially leading to information asymmetry.

Psychology

The scientific study of the mind and behaviors, encompassing a wide range of topics from cognitive processes to social interactions.

Economic Behavior

The study of how individuals, households, and organizations make choices to allocate scarce resources.

Moral Hazard

Moral hazard refers to a situation where one party is more likely to take risks because they do not have to bear the full consequences of their actions.