Exotic Options

Question 1

What is the payoff of an average strike put?

Answer 1

max(0, Sbar - S)

Question 2

What happens to the value of Average strike and Average price option as N increases?

Answer 2

• Value of average price decreases

- Value of average strike increases

Question 3

What is a rebate barrier option?

Answer 3

Pays fixed amount if barrier is reached

Question 4

What is the put-call parity for compound options?

Answer 4

CoC-PoC = C - ke^(-rt)
CoP-PoP = P - ke^(-rt)

Question 5

What do K1 and K2 represent in Gap option?

Answer 5

K1 : strike price

K2 : Trigger price

Question 6

What is the put call parity for gap options?

Answer 6

Gap Call - Gap Put - S_0e^(-dela*T) - K1e^(-rt)

Question 7

What is the black scholes for Exchange options?

Answer 7

C(A, B) = Fp(A)N(d1) - Fp(B)N(d2)

where
sigma = sqrt(var(a) + var(b) - 2cov(A,B))

Question 8

What is a Forward Start Option?

Answer 8

The strike is set on a future date t to be X*S_t

Question 9

What is chooser option?

Answer 9

Allows the owner at time t to choose whether the option will be a European call or put expiring at T

Question 10

Méthodologie pour trouver le prix à t = 0 d’un forward st

Answer 10

1- Trouver le prix de l’option à t

2- Trouver V_0 -> forward prep

Question 11

Méthodologie pour trouver le prix d’un chooser option

Answer 11

1- Find the value of the chooser option on the choice date
2- Manipulate the maximum function so that we obtain a put or a call
3- Calculate the price of the chooser option

Question 12

What is the difference between a standard loopback option and an extrema lookback option?

Answer 12

Standard loopback options have a floating strike price (le strike price est le min(S) pour call et max(S) pour put)

Extrema loopback options have a fixed strike price K - l’actif s-j est le max(S) pour call et le min(S) pour un put

Question 13

What is a shout option?

Answer 13

An option that gives the owner the right to lock in a minimum payoff exactly once during the life of the option, at a time that the owner chooses

Question 14

What is the payoff of a shout call?

Answer 14

max(S_T - K, S* - K, 0), si le shout est exercé
max(S_T - K, 0), si le shout n’est pas exercé

où S* est la valeur de l’action au temps où le propriétaire de l’option shout to the option writer

Question 15

What is a rainbow option?

Answer 15

An option whose payoff depends on two or more risky assets

Question 16

In what case are forward start options useful hedging strategies?

Answer 16

Hedging guarantees that will come into effect during the payout period of GMWB while the variable annuity is still in the accumulation period

Question 17

In what case are chooser options useful hedging strategies?

Answer 17

For variable annuities with two-sided guarantees

Question 18

In what case are lookback options useful hedging strategies?

Answer 18

hedging variable annuity guarantees where the guarantee value is periodically recalculated as the greater of the account value and the existing guarantee value

Question 19

In what case are shout options useful hedging strategies?

Answer 19

hedging variable annuity guarantees in situations where the guarantee value is recalculated at the discretion of the policyholder

Question 20

In what cases are rainbow options useful hedging tools?

Answer 20

When policyholders can hold multiple assets in their accounts and the guarantee applies to the account as a whole rather than individual assets in the account and the guarantee applies to the account as a whole rather than individual assets in the account