We understand standard deviation of returns as a measure of risk and rational investors would like to minimize risk. Not
Posted: Wed Jul 06, 2022 6:44 pm
We understand standard deviation of returns as a measureof risk and rational investors would like to minimize risk.Notwithstanding this, you may have read that as the standarddeviation of returns of the underlying asset increases the value ofan option rises. If standard deviation is a measure of risk andinvestors do not particularly like it, why does it lead to anincrease in an option's value? (40-60 words)
Question 2 (5 points)
Assume that you have some shares of stock in ABC Inc.Why do we say that if you also purchase a put option on the samestock, the price paid to buy the put option is like paying aninsurance premium? (60-70 words)
Question 2 (5 points)
Assume that you have some shares of stock in ABC Inc.Why do we say that if you also purchase a put option on the samestock, the price paid to buy the put option is like paying aninsurance premium? (60-70 words)