《《Investment 8th Chap021》.docVIP

CHAPTER 21: OPTION VALUATION PROBLEM SETS 1. The value of a put option also increases with the volatility of the stock. We see this from the put-call parity theorem as follows: P = C – S0 + PV(X) + PV(Dividends) Given a value for S and a risk-free interest rate, then, if C increases because of an increase in volatility, P must also increase in order to maintain the equality of the parity relationship. 2. A $1 increase in a call option’s exercise price would lead to a decrease in the option’s value of less than $1. The change in the call price would equal $1 only if: (i) there were a 100% prob