Question 1

Assume S = $36,K = 35,div = 0.0,r = 0.08,σ = 0.40,and 270 days until expiration.What is the premium on an Asian average strike call where N = 2?

Accepted Answer

A)  $1.91 
B)  $2.01 
C)  $2.11 
D)  $2.21 
A)  $1.91 
B)  $2.01 
C)  $2.11 
D)  $2.21 A

Question 2

Assume S = $31.75,div = 0,r = 0.03,and σ = 0.20,and 90 days until the expiration of a standard call option.A put on call compound option with an exercise price of $2.00 has 180 days until expiration.What is the premium of the put on call option?

Accepted Answer

A)  $0.42 
B)  $0.48 
C)  $0.85 
D)  $1.11 
A)  $0.42 
B)  $0.48 
C)  $0.85 
D)  $1.11 A

Question 3

Assume S = $51,K = $50,div = 0.0,r = 0.05,σ = 0.20,and 55 days until expiration.What is the premium on a knock-in call option with a down-and-in barrier of $48?

Accepted Answer

A)  $0.175 
B)  $0.185 
C)  $0.195 
D)  $0.205 
A)  $0.175 
B)  $0.185 
C)  $0.195 
D)  $0.205 B

Question 4

Assume S = $60,K = $60,r = 0.07,σ = 0.24,div = 0.02,and 90 days until expiration.What is the premium on an Asian average price put where N = 4?

Accepted Answer

A)  $1.74 
B)  $1.84 
C)  $1.94 
D)  $2.04 
A)  $1.74 
B)  $1.84 
C)  $1.94 
D)  $2.04

Question 5

What is the primary difference between a standard option and an exchange option?

Accepted Answer

When exercised,payment is made

Question 6

The value of an Asian call option is computed using the geometric average strike.What is the expected payoff if the observed prices to date are 69,70,72,71,75,and 73,respectively?

Accepted Answer

A)  1.26 
B)  1.36 
C)  1.46 
D)  1.56 
A)  1.26 
B)  1.36 
C)  1.46 
D)  1.56

Question 7

The underlying stock for a European exchange option has S = $27.15,div = 2.0%,and ?σ = 0.18.The strike stock has S = $30.00,div = 0.0%,and σ = 0.22.The two stocks have a correlation coefficient of 0.73.If the exchange option expires in 2 years,what is the price of the call using a Black-Scholes approach?

Accepted Answer

A)  $0.88 
B)  $0.98 
C)  $1.09 
D)  $1.19 
A)  $0.88 
B)  $0.98 
C)  $1.09 
D)  $1.19

Question 8

Assume S = $46,K = 45,div = 0,r = 0.03,σ = 0.20,and 50 days until expiration.What is the premium on a knock-out put option with an up-and-out barrier of $50?

Accepted Answer

A)  $0.83 
B)  $0.93 
C)  $1.13 
D)  $1.33 
A)  $0.83 
B)  $0.93 
C)  $1.13 
D)  $1.33

Question 9

Why might a down-and-in put option be more attractive than a standard option when hedging a foreign currency position?

Accepted Answer

At a given exercise price,the

Question 10

What is the payoff on a 90 strike Asian option given it is a geometric average price put? The recent prices are 89,90,91,87,87,and 88.

Accepted Answer

A)  1.25 
B)  1.35 
C)  1.45 
D)  1.55 
A)  1.25 
B)  1.35 
C)  1.45 
D)  1.55

Question 11

Assume S = $66,K = 65,div = 0,r = 0.04,σ = 0.25,and 60 days until expiration.What is the premium on a knock-out call option with a down-and-out barrier of $60?

Accepted Answer

A)  $2.40 
B)  $2.70 
C)  $3.00 
D)  $3.30 
A)  $2.40 
B)  $2.70 
C)  $3.00 
D)  $3.30

Question 12

Assume S = $43,K = 45,div = 0.0,r = 0.09,σ = 0.36,and 90 days until expiration.What is the premium on an Asian average strike put where N = 3?

Accepted Answer

A)  $0.26 
B)  $0.36 
C)  $0.46 
D)  $0.56 
A)  $0.26 
B)  $0.36 
C)  $0.46 
D)  $0.56

Question 13

The value of an Asian put option is computed using the geometric average strike.What is the expected payoff if the observed prices to date are 71,72,70,68,69,and 68,respectively?

Accepted Answer

A)  1.35 
B)  1.45 
C)  1.55 
D)  1.65 
A)  1.35 
B)  1.45 
C)  1.55 
D)  1.65

Question 14

Assume S = $53,K = 50,div = 0,r = 0.03,σ = 0.30,and 100 days until expiration.What is the premium on a knock-in put option with an up-and-in barrier of $55?

Accepted Answer

A)  $0.63 
B)  $0.73 
C)  $0.83 
D)  $0.93 
A)  $0.63 
B)  $0.73 
C)  $0.83 
D)  $0.93

Question 15

Assume S = $52,K = 50,div = 0.01,r = 0.06,σ = 0.22,and 45 days until expiration.What is the premium on an Asian average strike call where N = 1?

Accepted Answer

A)  $0.00 
B)  $0.10 
C)  $0.20 
D)  $0.30 
A)  $0.00 
B)  $0.10 
C)  $0.20 
D)  $0.30

Question 16

What is the payoff on a 75 strike Asian option given it is a geometric average price call? The recent prices are 72,76,74,78,and 78.

Accepted Answer

A)  0.46 
B)  0.56 
C)  0.66 
D)  0.76 
A)  0.46 
B)  0.56 
C)  0.66 
D)  0.76

Question 17

Why is the premium on a standard option and down-and-in call the same when the barrier price exceeds the stock price?

Accepted Answer

When the barrier price exceeds

Question 18

Assume S = $63,K = 60,div = 0,r = 0.04,σ = 0.35,and 90 days until expiration.What is the premium on a knock-in call option with an up-and-in barrier of $65?

Accepted Answer

A)  $1.96 
B)  $2.06 
C)  $2.16 
D)  $2.26 
A)  $1.96 
B)  $2.06 
C)  $2.16 
D)  $2.26

Question 19

Why are exotic options not so exotic? Ask the class to explain why an option described as exotic is merely a standard option with different terms.Ask students to create exotic options that are different than the text examples.

Accepted Answer

Exotic options are often considered "not

Question 20

Assume S = $55,K = $55,r = 0.07,σ = 0.27,div = 0.0,and 180 days until expiration.What is the premium on an Asian average price call,where N = 5?

Accepted Answer

A)  $2.89 
B)  $2.99 
C)  $3.09 
D)  $3.19 
A)  $2.89 
B)  $2.99 
C)  $3.09 
D)  $3.19

Exam 14: Exotic Options: I

Assume S = $36,K = 35,div = 0.0,r = 0.08,σ = 0.40,and 270 days until expiration.What is the premium on an Asian average strike call where N = 2?

Assume S = $31.75,div = 0,r = 0.03,and σ = 0.20,and 90 days until the expiration of a standard call option.A put on call compound option with an exercise price of $2.00 has 180 days until expiration.What is the premium of the put on call option?

Assume S = $51,K = $50,div = 0.0,r = 0.05,σ = 0.20,and 55 days until expiration.What is the premium on a knock-in call option with a down-and-in barrier of $48?

Assume S = $60,K = $60,r = 0.07,σ = 0.24,div = 0.02,and 90 days until expiration.What is the premium on an Asian average price put where N = 4?

What is the primary difference between a standard option and an exchange option?

The value of an Asian call option is computed using the geometric average strike.What is the expected payoff if the observed prices to date are 69,70,72,71,75,and 73,respectively?

Assume S = $46,K = 45,div = 0,r = 0.03,σ = 0.20,and 50 days until expiration.What is the premium on a knock-out put option with an up-and-out barrier of $50?

Why might a down-and-in put option be more attractive than a standard option when hedging a foreign currency position?

What is the payoff on a 90 strike Asian option given it is a geometric average price put? The recent prices are 89,90,91,87,87,and 88.

Assume S = $66,K = 65,div = 0,r = 0.04,σ = 0.25,and 60 days until expiration.What is the premium on a knock-out call option with a down-and-out barrier of $60?

Assume S = $43,K = 45,div = 0.0,r = 0.09,σ = 0.36,and 90 days until expiration.What is the premium on an Asian average strike put where N = 3?

The value of an Asian put option is computed using the geometric average strike.What is the expected payoff if the observed prices to date are 71,72,70,68,69,and 68,respectively?

Assume S = $53,K = 50,div = 0,r = 0.03,σ = 0.30,and 100 days until expiration.What is the premium on a knock-in put option with an up-and-in barrier of $55?

Assume S = $52,K = 50,div = 0.01,r = 0.06,σ = 0.22,and 45 days until expiration.What is the premium on an Asian average strike call where N = 1?

What is the payoff on a 75 strike Asian option given it is a geometric average price call? The recent prices are 72,76,74,78,and 78.

Why is the premium on a standard option and down-and-in call the same when the barrier price exceeds the stock price?

Assume S = $63,K = 60,div = 0,r = 0.04,σ = 0.35,and 90 days until expiration.What is the premium on a knock-in call option with an up-and-in barrier of $65?

Why are exotic options not so exotic? Ask the class to explain why an option described as exotic is merely a standard option with different terms.Ask students to create exotic options that are different than the text examples.

Assume S = $55,K = $55,r = 0.07,σ = 0.27,div = 0.0,and 180 days until expiration.What is the premium on an Asian average price call,where N = 5?

Introduction to Derivatives

An Introduction to Forwards and Options

Insurance, collars, and Other Strategies

Introduction to Risk Management

Financial Forwards and Futures

Commodity Forwards and Futures

Interest Rate Forwards and Futures

Swaps

Parity and Other Option Relationships

Binomial Option Pricing: Basic Concepts

Binomial Option Pricing: Selected Topics

The Black-Scholes Formula

Market-Making and Delta-Hedging

Financial Engineering and Security Design

Corporate Applications

Real Options

The Lognormal Distribution

Monte Carlo Valuation

Brownian Motion and Itos Lemma

The Black-Scholes-Merton Equation

Risk-Neutral and Martingale Pricing

Exotic Options: 2

Volatility

Interest Rate and Bond Derivatives

Value at Risk

Credit Risk

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