Question: 23. What happens when the volatility is zero in the Black-Scholes model? A) B) C) D) The option automatically expires out-of-the-money The option price converges

23. What happens when the volatility is zero in the Black-Scholes

23. What happens when the volatility is zero in the Black-Scholes model? A) B) C) D) The option automatically expires out-of-the-money The option price converges to either zero or the lower bound The gamma and delta converge The option price converges to the intrinsic value

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Please answer all questions: 1A. The effect of volatility on a call/puts price is a. decreased price due to decreased possible losses b. nominal volatility will not noticeably effect a call/puts...

14. Which of the following statements about the volatility is not true? a. the implied volatility often differs across options with different exercise prices b. the implied volatility equals the...

What happens when the volatility is zero in the Black-Scholes-Merton model? none of the above the option price converges to either zero or the lower bound the option automatically expires out of the...

Question 12 Incorrect What happens when the volatility is zero in the Black-Scholes-Merton model? the option price converges to either zero or the lower bound the option price converges to the...

2) This exercise concerns the Black-Scholes formula for the price of a European vanilla option and the calculation of the implied volatility. All code should be in R. A) Create a BSOptionPrice...

18. Equity as an Option Sunburn Sunscreen has a zero coupon bond issue outstanding with a $15,000 face value that matures in one year. The current market value of the firm's assets is$16,100. The...

I need a step by step solutions for the 10 problems in the excel file. The correct answers are provided I only need the solutions steps. Subject is Finance (options valuation) On March 2, a Treasury...

Evaluate the potential gains and losses for forwards,future,call options,put options and swaps. Outline and describe the different risks that each type of derivative contract faces. Describe...

I am working on a homework problem and am stumped on part B. Kim hotels is interested in developing a new hotel in seoul. The company estimates that the hotel would require an initial investment of...

I need help answering question 13 and 17 in this homework set. Thank you that is all I need currently. HOMEWORK SET 4 Derivatives 1. What is a lower bound for the price of a 4 months call option on a...

Determine the structure of the following compound based on itsmass, IR, and 1 H NMR spectra. Please explainhow you reached your conclusion. E 24 8 143 71 LIL 27 58 40 60 m/z 25 26 27 28 29 3 an 100 7...

Discuss the incremental costs of each of the following alternatives to recommend Tamara' House with the best alternative to cover it's laundry needs. Show your work in details Alternative 1:...

What does Cost of Goods Sold ( COGS ) represent on an income statement? The direct costs attributable to the production of goods sold by the company The total revenue generated by the company The...

Question 5 3 pts Centralized decision - making is to put decision - making authority in the hands of those persons or teams closest to and most knowledgeable about the situation. True False

Would you want to work in a company with a culture like Huaweis? Why or why not?

Do you think it is possible to sustain such a culture as leaders change? Why or why not?

How might the border tax impact Mexican workers and what responsibility does GM have to them? Should a global company care more about its home-country workers than host-country workers?