Which of the following statements is correct about cash-or-nothing options
A)they are subject to no credit risk
B)they must be priced by the binomial model
C)they have lower upside gains and lower downside losses than ordinary options
D)they are equivalent to short positions in asset-or-nothing options
E)none of the above

Question

Quizplus · Accepted Answer

Cash-or-nothing options are a type of binary option that pays a fixed amount if the option expires in-the-money. They are not inherently free of credit risk, do not require the binomial model for pricing, do not have lower upside or downside compared to ordinary options, and are not equivalent to short positions in asset-or-nothing options.

Which of the Following Statements Is Correct About Cash-Or-Nothing Options