The Standard Deviation of the Values of an Option Calculated

question 1

Multiple Choice

The standard deviation of the values of an option calculated using 10,000 Monte Carlo trials is 4.5.The average of the values is 20.What is the standard error of this as an estimate of the option price?

• A) 4.5
• B) 0.45
• C) 0.045
• D) 0.0045

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Definitions:

Deferred Consumption Risk

The risk associated with postponing consumption today in order to invest, with the potential of not having enough resources in the future.

Liquidity Risk

The risk that an entity will not be able to meet its short-term financial obligations due to the inability to quickly convert assets to cash without significant loss.

Maturity Risk

The risk that the value of a financial instrument will change due to a change in the absolute level of interest rates, sometimes referred to as interest rate risk.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.