Chapter 03 · Section 3.1

The time value of an option

The time value of an option is:

a) the time remaining in the option.
b) the interest rate.
• c) the difference between the premium and the intrinsic value.
  Yes. The premium is the intrinsic value plus the time value. Since the intrinsic value can easily be calculated, to determine the time value you take the difference between the premium and the intrinsic value. Continue
  d) the exercise price.
  e) the volatility of the underlying asset.

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