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Unformatted text preview: for the buyer of the put option: its optimal to exercise the put whenever
the share price is below the exercise price. 9.2 What determines option value?
The following table summarizes the effect on the expected value of call and put option of an increase in
the underlying stock price, exercise price, volatility of the stock price, time to maturity and discount rate.
The impact on the … option price of an increase in…
1. Underlying stock price (P)
2. Exercise price (EX)
3. Volatility of the stock price ( )
4. Time to option expiration (t)
5. Discount rate (r)
Negative 1. Underlying stock price
The effect on the option price of an increase in the underlying stock price follows intuitively from the
position diagram. If the underlying stock price increases the value of the call (put) option for a given
exercise price increases (decreases). Download free ebooks at bookboon.com
77 Corporate Finance Options 2. Exercise price This follows directly from the position d...
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- Spring '12