anonymous
  • anonymous
why is it said that options are rendered more valuable by higher volatility? thanks
Finance
  • Stacey Warren - Expert brainly.com
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katieb
  • katieb
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anonymous
  • anonymous
More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going in-the-money, which adds value to the option.
anonymous
  • anonymous
More volatility means potentially higher upside/downside movement within the same timeframe compared to lower volatility, meaning higher probability of option going in-the-money, which adds value to the option.
anonymous
  • anonymous
would this logic than imply that higher volatility would lower asset value since higher beta would result from higher volatility, pushing up wacc? thanks

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anonymous
  • anonymous
That depends on what you think of BETA in regards to how well it estimates actual risk. I think that higher volatility can cause an asset to be riskier, but I don't think that means the asset in question would have a lower intrinsic value just because it is volatile.

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