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1. Call values are directly related to the underlying stock’s volatility, yet higher volatility means that the stock price can go much lower as well as higher. How would you resolve this apparent paradox?

2. Explain why the value of a call option increases with time to expiration?

3. Explain how an option’s delta/gamma and a bond’s duration/convexity are similar.

4. Suppose you own an American call option on a stock that does not pay common dividends. The call option has one month until expiration. Under what circumstances would you exercise this call option early?

5. What is the most critical variable in the Black-Scholes model? Explain.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92096727

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