Option Prices Are Homogeneous of Degree One in Stock Price

question 23

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:

Differentiation Strategy

A business approach where a company develops unique products or services to stand out from competitors in its industry.

Differentiation Focus Strategy

A generic business strategy that requires products to have significant points of difference to target one or only a few market segments.

Differentiation Focus Strategy

A business strategy where a company targets a specific market segment, offering unique products or services to stand out from competitors.

Cost Leadership Strategy

A generic business strategy that focuses on reducing expenses and, in turn, lowers product prices while targeting a broad array of market segments.