Does volatility affect option prices?
Quantitative Finance
Level
1
As volatility increases, what happens to the price of an option?
The price will increase.
The price will decrease.
The price will increase for ATM and decrease for OTM.
The price will decrease for ATM and increase for OTM.
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1 solution
As volatility increases, the price of an option increases (or at least, doesn't decrease).
This is reflected in the option greeks by saying that all options are long vega.