What is the purpose of the Black–Scholes Option Pricing Model?

Q: In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model(OPM).(1)…

A: It is a contract to purchase a financial asset from one party and sell it to another party on an…

Q: What is Lump-sum cash-value option?

A: The option is the contract with two or more options for the financial instrument. The lump-sum cash…

Q: Describe about the Option-pricing models?

A: The option pricing model utilizes factors (stock value, exercise price, volatility, interest rate,…

Q: What’s the difference between a financial optionand a real option? What are some specific typesof…

A: Answer: Differences between financial options and real options: Financial options are those…

Q: Describe Option-Pricing Theory.

A: Option pricing theory is a technique used to calculate the fair value of an option by using…

Q: In a qualitative analysis, what factors affect the value of a real option?

A: An alternate choice that is accessible to the organization's managers taking investment…

Q: What effect does Time expiration have on call option price?

A: Time to Expiration in derivatives is the last day that the options or futures are valid. On or…

Q: Define a call option’s exercise value. Why is the actual market price of a call optionusually above…

A: Option contracts are the financial derivative instruments which gives the right but not obligation…

Q: What is a financial option? What is the singlemost important characteristic of an option?

A: Answer: A type of financial security that derives its value from the value of a particular…

Q: Why are options being sold at prices higher than their strike value?

A: Option: An option is a special type of contract which gives its holder the right but not obligation…

Q: What is in-the-money option?

A: Option is a financial instrument that gives the right to buy/sell an underlying in future date at a…

Q: Define each of the following terms:c. Black-Scholes option pricing model

A: An Option is a derivative contract that derives its value from the underlying securities. There are…

Q: What does market equilibrium mean? If equilibrium does not exist, how will it be established?

A: Introduction: Market equilibrium is nothing but that the marginal investors assume all shares are…

Q: Why do options typically sell at prices higher than their exercise values?

A: An asset produced by stock exchanges is a financial option. These are sold by investors and…

Q: Explain Price Return Swap?

A: A derivative contract which enables two parties to exchange financial instruments, cash flows,…

Q: Explain the following terms, Option price and Strike price

A: Option price and strike price are essential terms which are used in derivative markets. These are…

Q: Derive and critically evaluate the Cox, Ross and Rubinstein (1979) binomial option pricing model. In…

A: The Binomial pricing model is an important model for option pricing. It was developed by Cox, Ross,…

Q: Why do you think the most actively traded options tend to be the ones that are near the money?

A: Near the money is an option contract in which strike price is almost equal or close to the current…

Q: What impact does each of the followingparameters have on the value of a call option?(2) Strike price

A: A call option is a derivative instrument and thus,  it derives its value from some underlying asset.…

Q: Define Black-Scholes option pricing model

A: Assumptions of Black-Scholes option pricing models: There is no dividend during the lifetime of the…

Q: Explain why the price of a put option is higher when the strike price is higher.

A: The put option is a type of option which will be offering with the right of selling a particular…

Q: What effect does Stock Price have on call option price? What effect does Time expiration have on…

A: Effect of stock price on call option price: As the price of the stock increases the call option…

Q: What are the recommended options strategies when you expect the market has extreme (high)…

A: We have four basic option strategies: buy call, buy put, write call, and write put, because there…

Q: Why are the probabilities of stock price movements not used in the binomial model for calculating an…

A: The binomial option pricing framework was established in 1979 as a technique for valuing options.…

Q: did hedging reduce volatility of the realized price?Answer Yes or No and explain

A: Hedging can be referred as a strategy that is used by the investors to reduce the risk associated…

Q: What is the payoff to call option buyer and seller?

A: Call option A call option is referred to as the financial contract which provides its holder an…

Q: What is out-of-the money option?

A: Out of money options are generally preferable for the investors. This is because they are more…

Q: in the straddle option what is good to have an options with strike price equal, higher  or less than…

A: Straddle means Either Buying a Call as well as a Put Option or selling the call as well as put…

Q: What are the assumptions of Option-pricing models?

A: There are two option pricing models they are: Binomial model option pricing model Black Scholes…

Q: What are the Black-Scholes Options Pricing Model's underlying assumptions?

A: The Black-Scholes Options Pricing Model can be defined as the pricing model used to ascertain the…

Q: What are some factors that affect a call option’s value?

A: Options are the strategies opted by investors in which investors have a right but not a commitment…

Q: What must be the price of a put option with the same strike price and expiration?

A:

Q: What effect does Risk-free rate have on call option price?

A: Risk-free rate is the rate of return from an investment having no risk or zero risk. In other words,…

Q: Why do options sell at prices higher than their exercise values?

A: Options are contracts that give an 'option' or a choice to the holder to exercise the option or to…

Q: What do you think about vanilla options as hedging market risk vehicle? In your answer please…

A: The vanilla options are nothing but buying call and put options and these give opportunity to buy or…