Suppose an option knocks in at H 1 > S, and knocks out at H 2 >
Question:
Suppose an option knocks in at H1 > S, and knocks out at H2 > H1. Suppose that K <H2 and the option expires at T. Call this a “knock-in, knock-out” option. Here is an equation summarizing the payoff to this option (note that because H2 > H1, it is not possible to hit H2 without hitting H1):
What is the value of this option?
Transcribed Image Text:
if H not hit if Hi hit and H2 not hit if Hi hit and H2 hit Payoff = max(0. ST-K )
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 76% (13 reviews)
The value of the option is going to depend upon the probability that the stock at expiration will ...View the full answer
Answered By
Allan Olal
I have vast tutoring experience of more than 8 years and my primary objective as a tutor is to ensure that a student achieves their academic goals.
4.70+
78+ Reviews
412+ Question Solved
Related Book For
Question Posted:
Students also viewed these Banking questions
-
Suppose an option knocks in at H 1 > S , and knocks out at H 2 >H 1. Suppose that K < H 2 and the option expires at T . Call this a "knock-in, knock-out" option. Here is an equation summarizing the...
-
Suppose an investor purchases a call option on a Treasury bond futures contract with a strike price of $91. a. If at the expiration date the price of the Treasury bond futures contract is $96, will...
-
An option is the right to buy or sell an asset (stocks, bonds, foreign exchange, land, etc.) for a specified price on or before a specific date. A call option is the right to buy the stock, while a...
-
AASB 102 prohibits the use of the LIFO method. What is the argument against the use of LIFO?
-
In a USA Today poll of 737 respondents, 92% said that they do not open unfamiliar e-mail and instant-message links. Use a 0.01 significance level to test the claim that more than 75% of us do not...
-
The Fraser Paper Company produces large rolls of white paper weighing 1,000 kilograms for wholesalers for $1,500 each. The wholesalers then cut the paper into standard-sized sheets and package it in...
-
Discuss the impact of changes to the project and how they are handled in the context of cash flow.
-
On December 31, the trial balance indicates that the supplies account has a balance, prior to the adjusting entry, of $320. A physical count of the supplies inventory shows that $90 of supplies...
-
Review both links above about race and U.S. immigration law and policy. Reflecting on how racism has penetrated the treatment of immigrants in the U.S. How might the recent/current public awareness...
-
Gwynn Incorporated had the following transactions involving current assets and current liabilities during February 2020. Feb. 3 Collected accounts receivable of $ 15,700. 7 Purchased equipment for $...
-
A collect-on-delivery call (COD) costs zero initially, with the payoff at expiration being 0 if S
-
Suppose the stock price is $50, but that we plan to buy 100 shares if and when the stock reaches $45. Suppose further that = 0.3, r = 0.08, T t = 1, and = 0. This is a noncancellable limit order....
-
For the following transactions state which accounts should be debited, and which should be credited. (a) Insurance paid in cash. (b) Goods previously purchased returned to J Nesbit. (c) Cash banked....
-
Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $5,300,000 investment in threading equipment to get the project...
-
Other things to think about is around B2B versus B2C. Are social media tools using the same in those markets or are they different?
-
What sacrifices might need to be made to accomplish the goals/objectives at Toyota?
-
1. Marketing and sales is often perceived as dishonest, or uses deceptive tactics often. What is your opinion about this statement? 2. How can marketers and sales representatives avoid deception and...
-
For the Year Ended December 31 Gross Sales $ 32,000,000.00 Cost of Goods Sold 20,360,000.00 Gross Profit 11,640,000.00 Other Income: Dividends 65,000.00 Interest 20,000.00 Tax-Exempt Interest...
-
Complete the following. (a) State the degree and leading coefficient of f. (b) State the end behavior of the graph of f. f(x) = x - 2
-
Tiger, Inc. signed a lease for equipment on July 1, 2007.The lease is for 10 years (the useful life of the asset).The first of 10 equal annual payments of $500,000 was made on July 1, 2007.The...
-
*In face of global oil price shocks, what could monetary policymakers do to minimize the resulting recessionary gaps? What would be the trade-off of such a policy? Illustrate your answer using the...
-
Changes in oil prices shift the short-run aggregate supply (SRAS) curve. Consider how volatility in oil prices may influence the economys short-run equilibrium, which occurs at the intersection of...
-
Explain why fiscal policy played a greater role than usual in the response to the 2007-2009 recession.
-
On October 1, 2015, Surround Co. was identified as a potentially responsible party by the Environmental Protection Agency. Surround management along with its counsel have concluded that it is...
-
You have $63,000. You put 23% of your money in a stock with an expected return of 12%, $39,000 in a stock with an expected return of 13%, and the rest in a stock with an expected return of 21%. What...
-
The Information necessary for preparing the December 31, 2021 year-end adjusting entries for Vito's Pizza Parlor appears below. Vito's fiscal year-end is December 31. a. On July 1, 2021, purchased...
Study smarter with the SolutionInn App