If the vega of a call option is 02 and volatility of the p

If the vega of a call option is ????????? = 0.2 and volatility of the price of the underlying asset increased by 1%, the put premium of a put option on the same underlying share with the same strike price and time to maturity would:

(a) Increase by £0.20.

(b) Decrease by £0.20.

(c) Increase by £0.80

(d) Decrease by £0.80

Solution

When Volatility of an asset increases the price of the underlying also increase by vega units

Thus as the volatility increase by 1% thus the price of put option will increases by Pound 0.20 (option A)