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QUESTION 4 6 points Save Answer Consider three at-the-money (ATM) European call options (i.e., S = X for each of them) writte

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Answer #1

Solution :

Formula for black scholes model is

Call Option Premium = SN(01) - N (dz). Eert da d2 = dq - ovt In(S/E) + (r+ o 2/2)t ovt S=Current Spot Price N=Cumulative Std​​​​​​lets see the formula for d1, it is given that spot price = strike price and ln(S/E) = ln 1 = 0 .

It can be seen that D1 has direct relationship with square root of time to maturity and hence the call option premium will be directly related with time.

Higher the time to maturity higher will be the option premium.

The correct option is D )

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