True, False, or Uncertain Assume that all Black Scholes assumptions hold Let C be the value of a call option with strike price X on underlying stock S and exercise date T in a world with riskfree interest rate r This underlying stock has an expected return of and an expected volatility of Now, assu...

TRUE This is tricky If you look at the BlackScholes formula you will see tha ...

True, False, or Uncertain: Assume that all Black-Scholes assumptions hold. Let C be the value of a

Question:

True, False, or Uncertain: Assume that all Black-Scholes assumptions hold. Let C be the value of a call option with X on underlying stock S and exercise date T in a world with riskfree interest rate r. This underlying stock has an of μ and an expected volatility of σ. Now, assume that everyone in the world suddenly becomes more risk averse, and the new on the underlying stock is uf, where μf > μ. There is no change in σ or r. After this change, the value of C will go down.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...