Consider an option that pays $1000 if the stock price at maturity falls outside a range $\left[ K _ { 1 } , K _ { 2 } \right]$ .Which of the following is valid?
A)The option may be written as the sum of two barrier options.
B)The option decreases in value as $K _ { 2 } - K _ { 1 }$
Decreases.
C)The option may be written as the sum of two asset-or-nothing options.
D)The option may be written as the sum of two cash-or-nothing options.

Question

Quizplus · Accepted Answer

The option can be decomposed into two cash-or-nothing options, one paying $1000 if the stock price is below $K_1$ and another paying $1000 if the stock price is above $K_2$.

Consider an Option That Pays $1000 If the Stock Price [K1,K2]\left[ K _ { 1 } , K _ { 2 } \right][K1​,K2​]

Consider an Option That Pays $1000 If the Stock Price $\left[ K _ { 1 } , K _ { 2 } \right]$