Drivers of option value
You'll learn how option value breaks down into two key components: intrinsic value (based on exercise price and underlying asset price) and time value (driven by time to expiry, volatility, and risk-free interest rates).
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In this lesson
- 0:00 Drivers of option value overview
- 0:16 Time value components explained
- 0:29 Intrinsic value and exercise price
- 0:51 Calculating intrinsic value worked example
- 2:09 Time to expiry and volatility factors
- 3:08 Risk-free rates impact on options
- 4:00 Call options and interest rate strategy
- 4:30 Put options and interest rate strategy
About this lesson
This video walks you through each driver with worked examples, showing why longer-dated options are worth more, how asset volatility increases option value, and why interest rates affect calls and puts differently. Essential for AFM and Strategic Business Leader papers, understanding these drivers helps you value financial instruments accurately and make sound investment decisions.
Duration: 5m
Transcript
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