Which of the following is a path-independent option
A)a fixed strike Asian call option
B)a standard European call option
C)an up-and-out call option
D)an American put option
E)none of the above

Question

Quizplus · Accepted Answer

A path-independent option is an option whose payoff depends only on the final price of the underlying asset at expiration, not on the path the asset price took to get there. Let's evaluate the options provided:
A) A fixed strike Asian call option - This is a path-dependent option because its payoff depends on the average price of the underlying asset over a certain period, not just the final price at expiration.
B) A standard European call option - This is a path-independent option. The payoff of a European call option depends only on the price of the underlying asset at expiration. If the asset's price is above the strike price at expiration, the option can be exercised for a profit; otherwise, it expires worthless.
C) An up-and-out call option - This is a path-dependent option. An up-and-out call option becomes void if the price of the underlying asset reaches a certain barrier level during the life of the option.
D) An American put option - This is technically path-dependent because it can be exercised at any time before expiration. The decision to exercise early can be influenced by the path of the underlying asset's price.
Based on the definitions, the correct answer is:
B) a standard European call option
This is the path-independent option among the choices provided.

Which of the Following Is a Path-Independent Option