Question: How does an increase in volatility affect the option price? Why? b) What is the motivation for an investor to take a long position

How does an increase in volatility affect the option price? Why? b) What is the motivation for an investor to take a long position in a credit default swap (CDS)? Explain the difference between settling the CDS with physical delivery and in cash.

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a An increase in volatility tends to increase the option price all else being equal This is because ... View full answer

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