• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

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?
 
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

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.
 
Back
Top