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:

Agriculture

The practice of cultivating the land and raising livestock for food, fiber, and other products.

Economic Profits

The earning surplus after all forms of expenses, direct and indirect, are deducted from total earnings.

Purely Competitive

A market structure characterized by a large number of small firms, homogeneous products, and free entry and exit, leading to price taking behavior.

Marginal Costs

The upsurge in full cost that comes from the generation of one additional unit of a good or service.