0 votes

Q1. Delta of a Up-and-out Put ,Barrier = 125 ,strike=100 , when stock price is 126 is ?

A. 1 B -1 C 0.5 D 0

Q2. The Gamma of a Up-and-out Put ,Barrier=125, strike=100 is maximum when stock price is?

A. 125 B 100 C 150 D 20

Q3. Which one of the following portfolio ≈ replicates the payoff of a Up and out Call ,Barrier = 120, Strike =100 ,given that vanila call option with strike= 100 is trading at $11.434 and another call option with Strike =120 is priced at 4.61?

A. long one call X=100 and short 1.866 unit of X=120 call

B. long one call X=100 and long one unit of X=120 call

C .Short 2 call of X=100 and long one Call X=120

D long 2 call x=100 and short 1.86 unit of X=120 call

Q4. The method used to replicate Exotic product is as in Q3 is called ?

A. dynamic replication using vanila option

B Static Replication using Vanila option

C. Static replication decomposes a vanila option into a portfolio of Exotic options.

D.In general, a perfect static hedge requires an finite number of standard options.

Q5. What is the payoff of a long gap put option with trigger price =60 and strike price of 50 ,if at expiry stock price is 60?

A. 10 B. -10 C. 0 D . 120

A. 1 B -1 C 0.5 D 0

Q2. The Gamma of a Up-and-out Put ,Barrier=125, strike=100 is maximum when stock price is?

A. 125 B 100 C 150 D 20

Q3. Which one of the following portfolio ≈ replicates the payoff of a Up and out Call ,Barrier = 120, Strike =100 ,given that vanila call option with strike= 100 is trading at $11.434 and another call option with Strike =120 is priced at 4.61?

A. long one call X=100 and short 1.866 unit of X=120 call

B. long one call X=100 and long one unit of X=120 call

C .Short 2 call of X=100 and long one Call X=120

D long 2 call x=100 and short 1.86 unit of X=120 call

Q4. The method used to replicate Exotic product is as in Q3 is called ?

A. dynamic replication using vanila option

B Static Replication using Vanila option

C. Static replication decomposes a vanila option into a portfolio of Exotic options.

D.In general, a perfect static hedge requires an finite number of standard options.

Q5. What is the payoff of a long gap put option with trigger price =60 and strike price of 50 ,if at expiry stock price is 60?

A. 10 B. -10 C. 0 D . 120

+1 vote

**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 = X_{t} (trigger price) . now at expiry we will decide weather we want to execute or not like a normal option . if S_{T }>= X_{t }and option is call our payoff will be S_{T} - X_{t. . }At this point just change X_{t }with strike price and calculate the payoff (-ve or positive)

In our case X_{t}= 60 and Stock Price at expiry is 60 . so payoff X_{ t} - S_{T }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.

thank you.

Sir please go through this post and correct me if I am wrong..

...