A TRADER WRITES THE FOLLOWING 1-YEAR EUROPEAN-STYLE BARRIER OPTION...

17.

A trader writes the following 1-year European-style barrier options as protection against large movements in

a non-dividend paying stock that is currently trading at EUR 40.96.

Option

Price (EUR)

Up-and-in barrier call, with barrier at EUR 45

3.52

Up-and-out barrier call, with barrier at EUR 45

1.24

Down-and-in barrier put, with barrier at EUR 35

2.00

Down-and-out barrier put, with barrier at EUR 35

1.01

All of the options have the same strike price. Assuming the risk-free rate is 2% per annum, what is the

common strike price of these options?

a.

EUR 39.00

b.

EUR 40.00

c.

EUR 41.00

d.

EUR 42.00

2015 Financial Risk Manager (FRM®) Practice Exam