10. The relationship between the prices of the underlying stock, a call option,

Question

10. The relationship between the prices of the underlying stock, a call option, a put option, and a riskless asset is referred to as: a. put-call parity. b a balanced call. c. a protective call. d. a balanced put. e. a protective put. 11. The effect on an option's value of a small change in the value of the underlying asset is called the option: a. theta. c. rho. d. delta. e. gamma. b. vega. 12. The sensitivity of an option's value to a change in the standard deviation of the return on the underlying asset is measured by the option: a. theta. vega c. rho. d. delta. e. gamma 13. Which one of the following acts like an insurance policy should the price of a stock you own suddenly decrease in value? a. sale of a European call option b. sale of an American put option c. purchase of a protective put d. purchase of a protective call e. either the sale or purchase of a put

Explanation / Answer

10.(a) Put call parity holds relationship between the underlying asset, a call and a put option and also a riskless asset.

11. (d) Delta. It is the change in the value of the option with a change in the underlying asset.

12. (b) Vega.

13. (c) Purchasing a protective put acts as an insurance policy, if the price of the stock suddently declines....As the price declines, the value of the put options goes up, thus it can be purchased by paying a small premium.

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