Consider an Option That Pays $1000 If the Stock Price $\left[ K _ { 1 } , K _ { 2 } \right]$

question 3

Multiple Choice

Consider an option that pays $1000 if the stock price at maturity falls outside a range $\left[ K _ { 1 } , K _ { 2 } \right]$ .Which of the following is valid?

• A)The option may be written as the sum of two barrier options.
• B)The option decreases in value as \(K _ { 2 } - K _ { 1 }\)
• Decreases.
• C)The option may be written as the sum of two asset-or-nothing options.
• D)The option may be written as the sum of two cash-or-nothing options.

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Definitions:

Substitution Effect

Refers to consumers’ ability to substitute other products for the focal brand, thus increasing the price elasticity of demand for the focal brand.

Cross-Price Elasticity

A measure of how the demand for one product changes in response to a price change of another product.

Toothpaste

A gel or paste used with a toothbrush to clean and maintain the aesthetics and health of teeth, often containing fluoride to prevent dental cavities.

Complementary Product

A product that adds value to another product when used together, enhancing the overall user experience.