In the Black-Scholes Option Pricing Model, an Increase in Exercise

question 18

Multiple Choice

In the Black-Scholes option pricing model, an increase in exercise price (X) will cause

• A) an increase in call value and an increase in put value.
• B) an increase in call value and a decrease in put value.
• C) a decrease in call value and an increase in put value.
• D) a decrease in call value and a decrease in put value.
• E) an increase in call value and an increase or decrease in put value.

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Definitions:

Normative Statements

Assertions about how the world ought to be, reflecting opinions or values rather than objective observations.

Rational Choice

The theory that individuals always make prudent and logical decisions that provide them with the greatest benefit or satisfaction and are in their highest self-interest.

Normative Statements

Assertions about how the world ought to be, involving opinions and subjective judgements.

Rational Choice

A theory assuming individuals use logical calculations to make prudent decisions that provide them with the greatest benefit or satisfaction.