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Hull: Options, Futures, and Other Derivatives, Ninth Edition Chapter 26: Exotic Options Multiple Choice Test Bank: Questions with Answers 1. An Asian option is a term used to describe which of the following A. An option where the payoff depends on whether a barrier is hit B. An option where the payoff depends on the average value of a variable over a period of time C. An option that trades on an exchange in the Far East D. Any option with a nonstandard payoff Answer: B An Asian option is an option whose payoff is calculated from the average value of a variable over a period of time 2. As the barrier is observed more frequently, which of the following is true of a knock-out option As the barrier is observed more frequently it is more likely to be hit. A knock-out option therefore becomes less valuable 3. There are two types of regular options (calls and puts). How many types of compound options are there? There are four: call on call, call on put, put on call, and put on put 4. There are two types of regular options (calls and puts). How many types of barrier options are there?

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There are eight: up and in call, up and in put, down and in call, down and in put, up and out call, up and out put, down and out call, and down and out put. 5. In a shout call option the strike price is \$30. The holder shouts when the asset price is \$40. What is the payoff from the option if the final asset price is \$35? A. \$0 B. \$5 C. \$10 D. \$15 Answer: C The holder gets the intrinsic value at the time of the shout or the usual final payoff whichever is greater. In this case the holder gets 40−30 = \$10 6. A floating lookback call option pays off which of the following A floating lookback call pays off the amount by which the maximum stock price exceeds the final stock price
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