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QBank 3: Q3.25

J

jensen

Member
The solution simply identify each graph. I could only identify the first graph (K), how can we tell which graph is which by looking just at it?
 
Dukerio said:
I guess 3 and 5 makes sense as the volatility is likely to have a bigger impact than the r-f rate thus the steeper curve
Click to expand...

Dukerio

What do you mean by the volatility having bigger impact than r?

If as T increases, the more likely the option to go in-the-money, why not a linear relationship? Why is it increasing slowly? And vice versa for the sigma.

As for r, why did it not touch the y-axis? Why is it flatter than the rest?

Like you, I also wondered what would the graphs look like for a put option, but my guess is they all flipped except for sigma and time.
 
when u say "direct-direct", you mean obvious, right? hehe so r has a less 'direct' relationship to option price, therefore less steep. (hmmm...)

madness.
 
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