Consider the Following Exotic Option Whose Payoff at Maturity Is

question 21

Multiple Choice

Consider the following exotic option whose payoff at maturity is given by the stock price squared less a strike price if it has a positive value,zero otherwise,that is: max[S(1) ² - K,0].
Using the above data except for assuming a new strike price is $5,today's arbitrage-free price of this exotic option is:

• A) $210.13
• B) $438.85
• C) $786.63
• D) $888.60
• E) None of these answers are correct.

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Definitions:

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