Question

In a shout call option the strike price is $30. The holder shouts when the asset price is $40. What is the payoff from the option if the final asset price is $35?

	A.	$10
	B.	$5
	C.	$0
	D.	-$5

A Bermudan option is

	A.	an option where the payoff depends on whether a barrier is hit.
	B.	an option traded in the Bermudan securities exchange.
	C.	an American option which is exercisable only on specific dates.
	D.	an option where the payoff depends on the average value of a variable over a period of time.

Answer 1

1. The final asset price of $35 < the asset price when the holder shouts at $40

The holder of the call option has locked in the payoff at the shout price.

So, the payoff = Shout price - Strike price

The payoff = 40 - 30

The payoff = $10

Option A is correct

2. Option C is correct

A Bermudan option is an American option which is exercisable only on specific dates. The normal American option can be exercised any time before the expiration, but the Bermuda option can only be exercised on specific pre-determined dates.

Option A is incorrect because the payoff of Bermuda option is similar to other American options.

Option B is incorrect because Bermuda options are traded on other exchanges as well and not only in Bermuda securites exchange

Option D is incorrect because the payoff of Bermuda option is similar to other American options.

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