Exotic Options Flashcards
What is the payoff of an average strike put?
max(0, Sbar - S)
What happens to the value of Average strike and Average price option as N increases?
- Value of average price decreases
- Value of average strike increases
What is a rebate barrier option?
Pays fixed amount if barrier is reached
What is the put-call parity for compound options?
CoC-PoC = C - ke^(-rt) CoP-PoP = P - ke^(-rt)
What do K1 and K2 represent in Gap option?
K1 : strike price
K2 : Trigger price
What is the put call parity for gap options?
Gap Call - Gap Put - S_0e^(-dela*T) - K1e^(-rt)
What is the black scholes for Exchange options?
C(A, B) = Fp(A)N(d1) - Fp(B)N(d2)
where
sigma = sqrt(var(a) + var(b) - 2cov(A,B))
What is a Forward Start Option?
The strike is set on a future date t to be X*S_t
What is chooser option?
Allows the owner at time t to choose whether the option will be a European call or put expiring at T
Méthodologie pour trouver le prix à t = 0 d’un forward st
1- Trouver le prix de l’option à t
2- Trouver V_0 -> forward prep
Méthodologie pour trouver le prix d’un chooser option
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
What is the difference between a standard loopback option and an extrema lookback option?
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
What is a shout option?
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
What is the payoff of a shout call?
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
What is a rainbow option?
An option whose payoff depends on two or more risky assets
In what case are forward start options useful hedging strategies?
Hedging guarantees that will come into effect during the payout period of GMWB while the variable annuity is still in the accumulation period
In what case are chooser options useful hedging strategies?
For variable annuities with two-sided guarantees
In what case are lookback options useful hedging strategies?
hedging variable annuity guarantees where the guarantee value is periodically recalculated as the greater of the account value and the existing guarantee value
In what case are shout options useful hedging strategies?
hedging variable annuity guarantees in situations where the guarantee value is recalculated at the discretion of the policyholder
In what cases are rainbow options useful hedging tools?
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
