Please determine the payoff for the following knock-in put option, based on the price path summary below: Starting price of underlying (at inception): $101.32 Maximum traded price of underlying: $114.84 Minimum traded price of underlying: $98.35 Terminal price of underlying (at maturity): $103.16 Strike rate, K: $106.47 Barrier, H: $112.86 (Assume continuous price observations)
Question
Please determine the payoff for the following knock-in put option, based on the price path summary below: Starting price of underlying (at inception): 114.84 Minimum traded price of underlying: 103.16 Strike rate, K: 112.86 (Assume continuous price observations)
Solution
The payoff for a knock-in put option depends on whether the price of the underlying asset hits the barrier level during the life of the option. If the price hits the barrier, the option is "knocked in," or activated, and the payoff is the maximum of zero or the difference between the strike price and the terminal price of the underlying asset. If the price does not hit the barrier, the option is not activated and the payoff is zero.
In this case, the maximum traded price of the underlying asset is 112.86. Therefore, the option would be knocked in.
The payoff would then be the maximum of zero or the difference between the strike price (103.16). Since 103.16, the payoff would be 103.16 = $3.31.
So, the payoff for this knock-in put option would be $3.31.
Similar Questions
Please determine the payoff for the following fixed lookback put option, based on the price path summary below: Starting price of underlying (at inception): $25.11 Maximum traded price of underlying: $27.89 Minimum traded price of underlying: $20.75 Terminal price of underlying (at maturity): $26.71 Strike rate, K, (if applicable): $26.16 (Assume continuous price observations)
Please determine the payoff for the following long position in a knock-out call option, based on the price path summary below: Starting price of underlying (at inception): $104.38 Maximum traded price of underlying: $108.97 Minimum traded price of underlying: $98.28 Terminal price of underlying (at maturity): $104.87 Strike rate, K: $104.75 Barrier, H: $99.53 Premium, p: $1.97 (Assume continuous price observations
Please determine the most appropriate payoff formula for the following Floating Lookback put option, based on the price path summary below: Starting price of underlying (at inception): $26.69 Maximum traded price of underlying: $28.38 Minimum traded price of underlying: $24.55 Terminal price of underlying (at maturity): $25.28 Initial strike rate (if applicable): $27.37 (Assume there is only a single price observation only at maturity)
Consider the following parameters during the pricing of a knock-out put option: So: $50.00 K: $51.00 H: $49.00 σ: 10% Complete the following sentences that apply to changes in the inputs during initial pricing: (Please note that all scenarios below are independent) If K was higher, with other inputs unchanged, the value of the option premium would
The following information is available to you in relation to the pricing of a binary option with a maturity of 1 year: Underlying price, So: $40.67 Risk free rate, r: 5.3% p.a. N(d2): 0.5477 Using this information, please calculate the price of a Put - Binary (Cash or Nothing) that has the same strike as the current underlying price, and the same maturity. (Please round your answer to 2 decimal places)
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.