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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 26: Exotic Options Multiple Choice Test Bank: Questions with Answers 1. An Asian option is a term used to describe which of the following A. An option where the payoff depends on whether a barrier is hit B. An option where the payoff depends on the average value of a variable over a period of time C. An option that trades on an exchange in the Far East D. Any option with a nonstandard payoff Answer: B An Asian option is an opt
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  Hull: Options, Futures, and Other Derivatives, Ninth EditionChapter 26: Exotic Options Multiple Choice Test Ban: !uestions ith #ns ers 1.An Asian option is a term used to describe which of the followingA.An option where the payo depends on whether a barrier is hitB.An option where the payo depends on the average value of a variableover a period of timeC.An option that trades on an exchange in the Far East.Any option with a nonstandard payo Answer! BAn Asian option is an option whose payo is calculated from the average value of a variable over a period of time .As the barrier is observed more fre#uently$ which of the following is true of a %noc%&out optionA.'t becomes more valuableB.'t becomes less valuableC.(here is no eect on value.'t may become more valuable or less valuableAnswer! BAs the barrier is observed more fre#uently it is more li%ely to be hit. A %noc%&out option therefore becomes less valuable).(here are two types of regular options *calls and puts+. ,ow many types of compound options are there-A.(woB.FourC.ix.EightAnswer! B (here are four! call on call$ call on put$ put on call$ and put on put/.(here are two types of regular options *calls and puts+. ,ow many types of barrier options are there-A.(woB.FourC.ix.EightAnswer!    (here are eight! up and in call$ up and in put$ down and in call$ down and in put$ up and out call$ up and out put$ down and out call$ and down and out put.0.'n a shout call option the stri%e price is )2. (he holder shouts when the asset price is /2. 3hat is the payo from the option if the 4nal asset price is)0- A.2 B.0 C.12 .10 Answer! C (he holder gets the intrinsic value at the time of the shout or the usual 4nal payo whichever is greater. 'n this case the holder gets /25)2 6 127.A 8oating loo%bac% call option pays o which of the followingA.(he amount by which the 4nal stoc% price exceeds the minimum stoc% priceB.(he amount by which the maximum stoc% price exceeds the 4nal stoc%priceC.(he amount by which the stri%e price exceeds the minimum stoc% price.(he amount by which the maximum stoc% price exceeds the stri%e priceAnswer! BA 8oating loo%bac% call pays o the amount by which the maximum stoc% price exceeds the 4nal stoc% price9.A 4xed loo%bac% put option pays o which of the followingA.(he amount by which the 4nal stoc% price exceeds the minimum stoc% priceB.(he amount by which the maximum stoc% price exceeds the 4nal stoc%priceC.(he amount by which the stri%e price exceeds the minimum stoc% price.(he amount by which the maximum stoc% price exceeds the stri%e priceAnswer! CA 4xed loo%bac% put pays o the amount by which the stri%e price exceeds the minimum stoc% price$ if this is positive:.3hich of the following is e#uivalent to a long position in a European call option-  A.A short position in a cash&or&nothing put option plus a long position in an asset&or&nothing put optionB.A long position in an asset&or&nothing put option plus a long position in a cash&or&nothing put optionC.A long position in an asset&or&nothing call option plus a long position in a cash&or&nothing call option .A long position in an asset&or&nothing call option plus a short position ina cash&or&nothing call option Answer! A long position in a European call is e#uivalent to a long position in an asset&or&nothing call option *this is worth  2 ;*d 1 ++ and a short position in a cash&or&nothing call option *this is worth <=e &r( ;*d ++ >.3hich of the following is e#uivalent to a short position in a European put option-A.A short position in a cash&or&nothing put option plus a long position in an asset&or&nothing put optionB.A long position in an asset&or&nothing put option plus a long position in a cash&or&nothing put optionC.A long position in an asset&or&nothing call option plus a long position in a cash&or&nothing call option .A long position in an asset&or&nothing call option plus a short position ina cash&or&nothing call option Answer! AA short position in a European put is e#uivalent to a short cash&or&nothing put option *5=;*5d +e &r( + and a long position in an asset&or&nothing put * 2 ;*5d 1 ++ 12.3hich of the following describes a cli#uet optionA.An option to exchange one asset for anotherB.An instrument when the holder can choose between several alternativeoptionsC.An option on an option with predetermined stri%e prices for the two options .A series of options with rules for determining stri%e prices Answer! A cli#uet option is a series of options where there are rules for determining stri%e prices. For example$ there could be a series of one&yearoptions where the stri%e price for each option is the asset price at the beginning of its life.  11.An employer has promised that it will grant employees three year options in one year?s time and that the options will be at the money at the time they aregranted. 3hat describes these options- A.Chooser optionsB.Forward start optionsC.Compound options.hout options Answer! B (hese are referred to as forward start options because they are options that are certain to start at a particular future time.1 .3hen can Bermudan options be exercised-A.Any time during the life of the optionsB.Any time after a certain date up to the end of the life of the lifeC.Any time before a certain date or at the end of the option?s life.@n dates speci4ed at the start of the optionAnswer! Bermudan options can be exercised on speci4ed dates but not all dates. *Bermuda is between Europe and America+ 1).3hich of the following is the payo from an average stri%e call option-A.(he excess of the stri%e price over the average stoc% price$ if positiveB.(he excess of the 4nal stoc% price over the average stoc% price$ if positiveC.(he excess of the average stoc% price over the stri%e price$ if positive .(he excess of the average stoc% price over the 4nal stoc% price$ if positive Answer! BAn average stri%e call pays o the excess of the 4nal stoc% price over the average stoc% price if this is positive1/.3hich of the following is the payo from an average stri%e put option-A.(he excess of the stri%e price over the average stoc% price$ if positiveB.(he excess of the 4nal stoc% price over the average stoc% price$ if positiveC.(he excess of the average stoc% price over the stri%e price$ if positive .(he excess of the average stoc% price over the 4nal stoc% price$ if positive Answer! An average stri%e put pays o the excess of the average stoc% price over the 4nal stoc% price if this is positive
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