Hull : Exotic options
12 important questions on Hull : Exotic options
Four factors that drive the development of exotic products
- Hedging need
- Tax, accounting, legal or regulatory motive
- To reflect a view on market variables; eg volatility
- To make a new product to sell
What is a "forward start option"
Options that start in the future; close contract now for an option that starts at t+1.
Value of a forward start option=c*e(-qT)
Where q is the dividend yield and c is the value of a regular ATM option with a life of (t2-t1)
What is a "compound option"
Options on options: they have two strike prices and two exercise dates.
There are four types:
- call on call
- call on put
- put on call
- put on put
- Higher grades + faster learning
- Never study anything twice
- 100% sure, 100% understanding
For my 1st exam I got a C. Then, I started looking for ways to learn better and I came across Study Smart. Since then I have scored a A+, A, A- and another A. I highly recommend it to everyone who wants to hear it. I am so happy with it!!
I was struggling to finish all my first-year subjects for 3 years. Then I discovered Study Smart, which helped me to finish all of them within 3 months.
Because of StudySmart, things are going well in many ways. Before, I always had study stress and no time for anything. Now I feel calm and confident (because of the program). I used to score a B, now I usually score an A or A+.
Hey Chris, I really want to thank you very much for developing the platform, I usually got around C for my exams, now I scored an A+, an A and a A- !!
Since using Study Smart, my average has increased significantly. I even completed a statistics course with a A+ while I'm bad at statistics. I took on extra courses this year, because of Study Smart. Thanks so much!
Ever since I started studying with StudySmart I passed all my exams !!! No more re-sits!! At first, I was happy with a pass and now I only get good grades. Many thanks!
I aced all the courses I studied with Study Smart. For law, I first scored a D, and now an A! I’m 100% sure that I’ll pass all the courses I study with Study Smart.
I always thought I studied well. My grades were fine. I could never have imagined that applying these study skills would have such a huge and direct impact on my grades, my speed and the pleasure I have in learning.
For the first time, I finally feel totally confident about the way I learn. I have the perfect overview and make great progress in terms of speed and the grades I get. Thanks, Chris!
I immediately started to enjoy learning again, and my grades soared. All of a sudden, everything went better. I highly recommend Study Smart to all students..
Being able to create my materials online made the process of studying so much smoother and quicker. I no longer have to spend a huge amount of my time on creating my summaries.
At first, my notes were a mess. Now I use Study Smart to take my notes in a perfectly structured way. It helps me to save a lot of time and do other things I enjoy.
Students that study with Study Smart get better grades. The system applies all the learning methods in such a way that both well-performing students and students who struggle perform much better.
Hi Chris, I would like to thank you very much. Last year I scored C on a course, and this year I got an A+ thanks to your method! Thank you very much!
The largest effect is that my child is more enthusiastic about school! Every parent wants their children to be happy at school, Study Smart made it happen.
In high school, I failed several exams, and that has really changed now. I actually needed this tool very much back then. Since I started studying with StudySmart, I haven't had any D's. My average score is now an A and those are results I would have never had in the past
With my old method, I passed only 3 out of 8 courses. Since I started taking my notes digitally in Study Smart, I have passed all my courses on the first try. For me, StudySmart takes away the stress of wondering if I will pass or not.
Thanks to StudySmart, I passed all my exams, and with better grades than before! On top of that, I have mastered a very good study method now, which I am confident will help me earn my degree.
What is a "chooser option" and to what hedging strategy does it compare?
Option where the holder has the right to decide whether it is a call or a put option.
Value is MAX(c,p)
It compares to a straddle (long call and long put), used when you expect much volatility.
Chooser is cheaper; you have less flexibility after you made your decission
What is a "binary option" and to what hedging strategy does it compare?
Options with discontinuous payoffs:
- Cash-or-nothing: if in the money it pays a fixed amount or nothing
- Asset-or-nothing: pays asset or nothing
It compares to a bull spread (long call plus short call with higher strike price) when the pay off is larger than the maximum price.
Regular European Call = long in asset-or-nothing call // short in an-cash-or-nothing call.
Regular European Put = short in asset-or-nothing put // long in cash=or-nothing put.
What is a "lookback option"
Floating lookback call = final - minimal
Floating lookback put = max - final
Fixed lookback call = max - strike
Fixed lookback put = strike - min
What is a "shout option"?
A regular option contact plus the possibility for the holder to use a "shout", so he can fix the minimum payoff.
What is an "asian option"?
A regular option in which the payoff depends on the average price during (part of) the life of the option.
Average price call/put: max of fixed strike price & average stock price
Average strike call/put: ????
Relatively easy to hedge, becuase payoff becomes progressively more certain as we approach maturity.
What is an "exchange option"?
Option to pay with an asset worth of U(T) in order to receive (to exchange) asset worth of V(T)
What is a "raibow option"?
Options with at least two different (risky) assets
What is a "basket option"?
Option in which payoff depends on the value of a basket of assets (stocks, stock indices, currencies)
What is a "volatility/variance swap"?
Volatility swap: agreement to exchange realized volatiltiy of an asset for a pre-specified volatility
Varience swap: agreement to exchange realized variance rate of an asset for a pre-specified varience
Varience swap is easier to value, because it can be replaced using a portfolio of puts and calls.
Try our study magic for free
a PDF, study it super fast
- No sign up, email or credit card needed!
- AI makes unlimited flashcards
- Get unlimited quizzes and tests
- Ask AI anything
- No sign up, email or credit card needed!
- Have and keep perfect overview
- Make flashcards, notes and mind maps
- Review, test and score!
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding
