Which of the following statements are correct?
I.Increasing the time to maturity may not increase the value of a European put.
II.Vega measures the sensitivity of an option's value to the passage of time.
III.Call options tend to be more sensitive to the passage of time than are put options.
IV.An increase in time decreases the value of a call option.
A)I and III only
B)II and IV only
C)II, III, and IV only
D)I, III, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

I. Increasing the time to maturity can indeed decrease the value of a European put option, especially if the underlying asset is expected to decrease in value over time. This is because the value of a put option is related to the likelihood that the underlying asset's price will fall below the strike price. As time increases, there can be a greater chance for the asset price to recover, potentially decreasing the value of the put option.III. The statement about call options being more sensitive to the passage of time than put options is generally incorrect, making this explanation not applicable. However, the sensitivity to time, or theta, does affect both call and put options, but not in the way described by the statement.

Which of the Following Statements Are Correct