Option Prices Are Homogeneous of Degree One in Stock Price

question 21

Multiple Choice

Option prices are homogeneous of degree one in stock price and strike price.What does this imply?

• A)That if you double the stock price and the strike price the option price will remain unchanged.
• B)That if you double the stock price the option price will double.
• C)That if you double the stock price and halve the strike price the option price will double
• D)That if you double the stock price and strike price the option price will double.

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Definitions:

Price of Chicken

The cost at which chicken is sold, which can vary based on factors like market demand, feed prices, and production costs.

Demand for Beef

The desire of consumers to purchase beef at various price levels, holding other factors constant.

Prices of Inputs

The costs associated with the materials, labor, and other resources necessary for the production of goods or services.

Produce

To manufacture, grow, or create goods and services for consumption or sale.