The premium of a currency put option should increase if:
A)the volatility of the underlying asset increases.
B)the spot rate increases.
C)A and B.
D)none of the above

Question

Quizplus · Accepted Answer

The premium of a currency put option is based on several factors, including the volatility of the underlying asset. When the volatility of the underlying asset increases, the chances of the option being exercised also increase. Hence, the premium of the option would increase. The spot rate has no effect on the premium of the option. Therefore, option B is incorrect, and option C is incorrect. The correct answer is option A.

The Premium of a Currency Put Option Should Increase If