Which one of the following statements is correct?
A) Increasing the time to maturity may not increase the value of a European put.
B) An increase in time decreases the value of a call option.
C) Exercising an American option is always more valuable than selling the option.
D) Call options tend to be less sensitive to the passage of time than are put options.
E) Vega measures the sensitivity of an option's value to the passage of time.

Question

Quizplus · Accepted Answer

Increasing the time to maturity can indeed increase the value of a European put option, but it's not always the case. The value of a put option is influenced by several factors, including the underlying asset's price, the strike price, the time to maturity, the risk-free rate, and the volatility of the underlying asset. While more time to maturity generally increases the value of options because it gives more time for the underlying asset to move in a favorable direction, the effect can vary depending on the interplay of these factors. Specifically for a European put, if the underlying asset is far below the strike price, additional time may not significantly increase the option's value since it's already deep in-the-money.

Which One of the Following Statements Is Correct