Look-back Options in Finance
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Questions and Answers

Which of the following best defines a Compound Option?

  • An option with a higher premium due to added features
  • An option with an underlying asset that is another option (correct)
  • An option with unlimited profit potential
  • An option that can only be exercised on specific dates

    • If the starting time of a compound option is greater than 0, what type of compound option is it?

  • American-style compound option
  • Deferred compound option (correct)
  • Exercisable compound option
  • Immediate compound option

    • What does 't1' represent in a compound option?

  • Starting time of the compound option
  • Expiry of the underlying asset
  • Expiry of the compound option (correct)
  • Strike price of the embedded option

    • In a call-on-call option, what is needed for the option to have a payoff?

    <p>Two specific events to occur</p> Signup and view all the answers

    What is the purpose of the rebate feature in options when the barrier is hit?

    <p>To add an additional payment to the option holder</p> Signup and view all the answers

    In a compound option, what does 'St' represent?

    <p>Price of the underlying asset at time t</p> Signup and view all the answers

    What is the payoff of a down-and-in call option with a barrier of 39 and a strike price of 40 when the underlying asset price is 41?

    <p>$0</p> Signup and view all the answers

    In a down-and-out put option with a barrier of 39 and a strike price of 40, what is the payoff if the underlying asset price in 3 months is 35?

    <p>$0</p> Signup and view all the answers

    For an up-and-in call option with a barrier of 41 and a strike price of 40, what is the payoff when the asset price is 42?

    <p>$0</p> Signup and view all the answers

    Calculate the price of a 3-month up-and-out put option with a barrier of 41 and a strike price of 40 if the underlying asset price remains at 38 throughout.

    <p>$0</p> Signup and view all the answers

    For a put-on-put option with a strike price of 40, what is the payoff if the underlying asset price in 3 months is 41 and in 9 months is 36?

    <p>$-5</p> Signup and view all the answers

    In a call-on-put option scenario with a strike price of 40, what is the payoff when the underlying asset price is 37 in 3 months and 36 in 9 months?

    <p>$-1</p> Signup and view all the answers

    What is the correct formula for standard look-back call payoff?

    <p>max{0, ST - m}</p> Signup and view all the answers

    In an extreme look-back put option, what does the payoff formula represent?

    <p>Maximum difference between the strike price and the minimum value of the underlying asset</p> Signup and view all the answers

    What is the value of the underlying asset at expiration (ST) given S0 = 150 and S3 = 200?

    <p>$200</p> Signup and view all the answers

    For an extreme look-back call option with a strike price of 100, what is its payoff if the maximum value of the asset over the period is 210?

    <p>$110</p> Signup and view all the answers

    What is the sum of the payoffs for a standard look-back put, an extreme look-back call with a strike of 100, and an extreme look-back put with a strike of 100 given ST = 200, max = M = 210, min = m = 120?

    <p>$90</p> Signup and view all the answers

    In a look-back option, what does 'm' represent?

    <p>Minimum value of the underlying asset</p> Signup and view all the answers

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