An American Put Option Is Sometimes Exercised Early Because

question 17

Multiple Choice

An American put option is sometimes exercised early because:

• A)The holder of an in-the-money option believes that the stock has bottomed out and expects the stock to rise in the future.
• B)The absolute time value of the option is larger than the insurance value.
• C)The volatility of the stock has just increased.
• D)The skewness of the stock has just increased from its initial level.

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Definitions:

Indifference Curve

A graph showing different combinations of two goods between which a consumer is indifferent.

Total Utility

The total satisfaction received from consuming a particular amount of goods or services.

Indifference Curve

A graph that shows combinations of two goods that give a consumer equal satisfaction and utility.

Utility Levels

Quantitative measures of the satisfaction or happiness that individuals derive from consuming goods and services.