Q1.D. Delta indicates what is the chance that stock will expire in the money. as barrier is reached at 126 ., this option is not live and delta is zero.
Q2. A. gamma is max at that point where drama is maximum or chance or delta change is highest. below barrier and above barrier delta abnormally changes so gamma is max at barrier
Q3. A Barrier options can be replicated by series of calendar spread .but this question can be viewed by assuming stock price at expiry to be far above 120 between 100 and 120 then at far below 100. correct answer seems to be A. although with two vanila option we will never get a perfect hedge using static hedging.
Q4.B (its a fact/theory)
Q5. B (I am offering you a best formula which you will not get anywhere even after long tiring google search.) first we will forget the strike price and work with only trigger price . this option is like a normal vanila option with strike price = Xt (trigger price) . now at expiry we will decide weather we want to execute or not like a normal option . if ST >= Xt and option is call our payoff will be ST - Xt. . At this point just change Xt with strike price and calculate the payoff (-ve or positive)
In our case Xt= 60 and Stock Price at expiry is 60 . so payoff X t - ST and after replacing trigger price with strike price payoff = 50 -60 = -10
In Black Scholes formula N(d2) indicated what is chance that stock will expire in the money so in that formula we will put trigger price in place of X not strike price. because chance is decided by trigger price. while payoff is only decided by strike price.
Sir please go through this post and correct me if I am wrong..