What Is the Boundary Condition for a European Call Option

question 12

Multiple Choice

What is the boundary condition for a European call option?

• A) Max [0,S(T)-K]
• B) Max [0,K-S(T)]
• C) Min [0,S(T)-K]
• D) Min [0,K-S(T)]

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Definitions:

Present Value

A calculation that determines the current value of a future amount of money or stream of cash flows given a specified rate of return.

Annual Cash Flows

The total amount of money being transferred into and out of a business over one year, considered in terms of liquidity and financial health.

Geothermal Heat Pump

A central heating and/or cooling system that transfers heat to or from the ground, using the earth as a heat source or sink.

Net Present Value

A financial metric that estimates the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows over a period of time.