CFA Level I · CFA Level I Exam · Pricing and Valuation of Options
At expiration, the payoff to the holder of a European put option on an asset is most likely:
A put holder's payoff at expiration is the exercise price minus the asset price when that difference is positive, and zero otherwise. The put allows selling at the exercise price, so it only has value when the asset trades below it.
- Athe exercise price minus the asset price, if positive, otherwise zeroCorrect
- Bthe asset price minus the exercise price, if positive, otherwise zero
- Cthe premium paid minus the asset price, if positive, otherwise zero
Explanation
A put gives the right to sell at the exercise price, so its payoff is max(0, X - S). The second option is the call payoff. The third wrongly uses the premium instead of the exercise price.
Did you get it right without looking?
One question tells you little. A timed set on Pricing and Valuation of Options shows your real accuracy, how long you take and where you lose marks.
More Pricing and Valuation of Options questions
- A European call on a non-dividend-paying stock trades at 6.00. The stock price is 100, the put and call share a strike of 105 and a one-year…
- A portfolio manager holds a long position in a call option and a long position in a put option with the same strike and expiration on the sa…
- A dealer is short 1,000 call options on a stock, each on one share, and is delta hedged with the call delta at 0.50 and gamma at 0.04 per sh…
- A stock trades at 50. In a one-period binomial model it can rise to 60 (u = 1.20) or fall to 40 (d = 0.80). The risk-free rate is 5% for the…
- Holding all other BSM inputs constant, an increase in the volatility of the underlying asset will most likely cause the values of a European…
- In the BSM model for a non-dividend-paying stock, a European call has a delta of 0.60. A European put on the same stock with the same exerci…