Asked by Gavin VandenTop on May 16, 2024
Verified
Barrier options have payoffs that
A) have payoffs that only depend on the minimum price of the underlying asset during the life of the option.
B) depend both on the asset's price at expiration and on whether the underlying asset's price has crossed through some barrier.
C) are known in advance.
D) have payoffs that only depend on the maximum price of the underlying asset during the life of the option.
Barrier Options
A type of option whose existence and payoff depend on whether the underlying asset's price reaches a predetermined barrier level.
Payoffs
The amount received from an investment or financial transaction.
Underlying Asset
The financial asset upon which a derivative's value is based, such as stocks, bonds, commodities, or currencies.
- Detail the characteristics and specifics of exotic options.
Verified Answer
SM
Sierra MorinMay 20, 2024
Final Answer :
B
Explanation :
Barrier options' payoffs depend on whether the underlying asset's price breaches a predetermined barrier level at any point during the option's life, as well as the asset's price at expiration.
Learning Objectives
- Detail the characteristics and specifics of exotic options.