The Premium on an Existing Call Option Should ____ When

question 72

Multiple Choice

The premium on an existing call option should ____ when there is a reduction in the expected short-term volatility of the stock price.

• A) be negative
• B) decline
• C) increase
• D) be unaffected
• E) A and B

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Definitions:

Extinction

In conditioning, the process by which a conditioned response diminishes and eventually disappears following repeated exposure to the conditioned stimulus without the unconditioned stimulus.

Spontaneous Recovery

Spontaneous recovery refers to the reappearance of a previously extinguished conditioned response after a period of non-exposure to the conditioned stimulus.

Conditioned Responses

Conditioned responses are the behaviors that result from the association between a previously neutral stimulus and a conditioned stimulus through conditioning.

Extinction

In psychology, the gradual weakening of a conditioned response by not reinforcing the conditioning stimulus.