In the Black-Scholes option pricing model, an increase in security volatility ($\sigma$) will cause
A)An increase in call value and an increase in put value
B)An increase in call value and a decrease in put value
C)A decrease in call value and an increase in put value
D)A decrease in call value and a decrease in put value
E)An increase in call value and an increase or decrease in put value

Question

Quizplus · Accepted Answer

In the Black-Scholes model, higher volatility increases the value of both call and put options because it increases the potential for larger price movements, benefiting both option types.

In the Black-Scholes Option Pricing Model, an Increase in Security σ\sigmaσ

In the Black-Scholes Option Pricing Model, an Increase in Security $\sigma$