1. A manager conducts a delta hedge on a written put position using the underlying asset can:
A. earn the risk-free rate.
B. earn zero return since the portfolio value does not change over time.
C. earn extra “dividend” income on a given position.
D. place a floor on the position while leaving the potential for upside risk.
2. The value of a European call option on an asset with no cash flows is positively related to all of the following, EXCEPT:
A. exercise price.
B. risk-free rate.
C. return volatility of the underlying.
D. time to exercise.