Consider a Down-And-Out Call and a Down-And-In Call with a Current

question 4

Multiple Choice

Consider a down-and-out call and a down-and-in call with a current stock price $S$ , barrier $H < S$ , and strike $K > H$ . When does the knock-out option increase in price and the knock-in decrease in price?

• A) When the stock price increases.
• B) When the volatility increases.
• C) When the barrier increases.
• D) When the strike increases.

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Definitions:

Supply Curve

A graphical representation of the relationship between the price of a good and the quantity of the good that suppliers are willing to sell.

Tax on Buyers

A financial charge imposed directly on purchasers, affecting the demand side by potentially reducing the quantity of goods or services bought.

Sellers Receive Less

A situation where suppliers earn less revenue than expected due to market factors such as decreased demand or increased competition.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied by producers.