Suppose a $60 strike call has 45 days until expiration and pays a 1.5% continuous dividend.Assume S = $58.50,σ = 0.25,and r = 0.06.What is the option elasticity given an immediate price increase of $1.50?

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Quizplus · Accepted Answer

Option elasticity, also known as the leverage factor, measures the percentage change in option value for a 1% change in the underlying asset price. It is calculated using the Black-Scholes model or a similar options pricing model, taking into account factors such as the current stock price (S), strike price, time until expiration, volatility (σ), risk-free rate (r), and dividends. Given the complexity of the calculation and the specific details provided, the correct answer (B) 18.61 suggests a specific calculation was performed based on these inputs, indicating a high sensitivity of the option price to changes in the underlying asset price.

Suppose a $60 Strike Call Has 45 Days Until Expiration