All other factors equal, the ________ the expected volatility (as measured by ________) of the price of the underlying asset, the more an investor would be willing to pay for the option, and the more an option writer would demand for it.

Question

Quizplus · Accepted Answer

The more expected volatility (as measured by the standard deviation) of the price of the underlying asset, the more an investor would be willing to pay for the option, and the more an option writer would demand for it. Therefore, the greater the expected volatility, the higher the value of the option, and the option writer would demand a higher premium for taking on the risk.

All Other Factors Equal, the ________ the Expected Volatility (As