Draw the profit and loss payoff diagrams and explain in words for: i. A long position...
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Draw the profit and loss payoff diagrams and explain in words for: i. A long position in a Digital Double knock-out Call Option with strike of 75 and barriers of 75 and 125 with a premium paid of 4. ii. A short position in a Up and In Call Option with a strike of 100 and a barrier of 120 with a premium received of 6. In both cases assume that the underlying is currently at 100 and the barrier is only monitored at maturity. b. How does the value of both these options change with: i. The location of the barriers ii. The barrier monitoring frequency iii. Implied Volatility iv. The price of the underlying (assume that the initial price is 100) In each case explain why the price changes. c. Briefly outline why the realized volatility of the underlying might ultimately impact the profitability of a delta hedged long call option position. Draw the profit and loss payoff diagrams and explain in words for: i. A long position in a Digital Double knock-out Call Option with strike of 75 and barriers of 75 and 125 with a premium paid of 4. ii. A short position in a Up and In Call Option with a strike of 100 and a barrier of 120 with a premium received of 6. In both cases assume that the underlying is currently at 100 and the barrier is only monitored at maturity. b. How does the value of both these options change with: i. The location of the barriers ii. The barrier monitoring frequency iii. Implied Volatility iv. The price of the underlying (assume that the initial price is 100) In each case explain why the price changes. c. Briefly outline why the realized volatility of the underlying might ultimately impact the profitability of a delta hedged long call option position.
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i Long position in a digital double knockout call option PL is 4 premium paid if the underlying is b... View the full answer
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