Investment Strategies - Review Questions 23 - 27
- Which of the following statements concerning options pricing is correct?
- The Black-Scholes model is a discrete time pricing model, whereas the binomial model is referred to as continuous time.
- Binomial options pricing starts by considering two possible outcomes and one discrete period with the possibility of both assumptions being relaxed to accommodate actual market scenarios.
- Both binomial options pricing and the Black-Scholes models represent an options-specific application of the multi-factor model.
- None of the foregoing.
- None of the following choices constitute an acceptable use of options, except:
- Gaining low cost exposure to the underlying.
- Income generation.
- None of the foregoing.
- Each of the following attributes characterize a low option premium, except:
- Close expiration date.
- Low stock price and the option is a call.
- High stock price and the option is a put.
- Deep in-the-money-call.
- An option that allows exercise only at expiration is referred to as:
- Arrange the following options by premium in ascending order. Assume that the month is September.
- January 60 call, underlying trades at 57
- October 44 put, underlying trades at 41
- July 53 call, underlying trades at 58
- April 27 call, underlying trades at 29
- IV, I, III, II
- I, II, III, IV
- I, IV, III, II
- I, IV, II, III
- II, I, IV, III
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