14 May WHAT MAKES AN EXOTIC OPTION PATH-DEPENDENT?
What makes an exotic option path-dependent? Think of an example of
such an option that is not covered in this chapter. Explain why you consider it
path-dependent.
2.
If an option is path-dependent, do we need to use a nonrecombining
binomial tree for pricing it? That is, do we need to evaluate the option payo
along each path of stock prices separately rather than being able to price it
by backwards recursion using the original stock price tree?
4.
Why are Asian options popular? State some uses of Asian options.
5. Is an Asian option cheaper or more expensive than a plain vanilla
option? Why? Is this always true?
6. Explain the di erence between an Asian average-price option and an
Asian average-strike option.
7.
Distinguish between a lookback price option and a lookback strike
option.
8. Consider an initially at-the-money knock-out put option with the
knock-out price H set above the strike K. Will the price of the put be greater,
smaller, or equal to that of a vanilla put? Why?
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