The Effect on an Option's Value of a Small Change

question 6

Multiple Choice

The effect on an option's value of a small change in the value of the underlying asset is called the option:

• A)theta.
• B)vega.
• C)rho.
• D)delta.
• E)gamma.

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Definitions:

Guaranteed Residual Value

The predetermined value guaranteed to the lessee by the lessor or a third party, ensuring the asset will have a certain value at the end of the lease term.

Maintenance Agreement

A contract in which one party agrees to maintain an asset owned by another party, typically involving regular service checks and repairs.

Guaranteed Purchase Options

Provisions in insurance or financial contracts allowing the holder to acquire additional coverage or securities at predetermined conditions.

Capital Leases

Leasing agreements classified as purchases of assets for accounting purposes, due to their terms transferring substantial ownership rights to the lessee.