Final answer:
The essential components of option values are the strike price, expiration date, and underlying asset. Interest rate and dividend yield are additional factors that can influence an option's price but are not considered essential components.
Step-by-step explanation:
The essential components of option values include the strike price, expiration date, and the underlying asset. These elements dictate the potential profitability and cost of an option. The strike price is the price at which the underlying asset can be bought or sold, which is central to the options contract. The expiration date is the last date the option can be exercised, after which it becomes void. The nature of the underlying asset, which can be stocks, commodities, or other financial instruments, is vital since it influences the option's intrinsic value.
While not considered essential components of an option's value, the interest rate and dividend yield are factors that can indirectly affect the price of an option. The interest rate impacts the cost of carrying an option position (the cost of holding the option over time), while dividend yield can influence the underlying asset's price movements and, consequently, the option's value.