Question

For both American and European put options, which of the following reason(s) will increase the put...

For both American and European put options, which of the following reason(s) will increase the put option's premium? You should pick up ALL the correct answers.

Longer expiration date

Higher volatility

Lower exercise price

Higher interest rate

None above
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Homework Answers

Answer #1

The correct options are Longer expiration date, Higher Volatility and lower exercise price.

Explanation

When the expiration date of options is longer the seller of option will demand higher premium for the options becasue of time value.

when the volatility is higher the premium of options will also increase this is because the probability of the upward and downward potential will increase.

When the exercise price is lower it will automatially increase the put option premium because lower exercise price will increase the intrinsic value of the option.

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