Which of the following is true of a gap option
A. The strike price determining whether a payoff is made is not the same as the strike price determining the size of the payoff
B. There is a straightforward valuation formula similar to Black-Scholes-Merton
C. It describes an option where there is a cost to exercising
D. All of the above
D
All of A, B, and C are true. A gap call option provides a payoff of ST – K1 when ST>K2 . A gap put option provides a payoff of K1-ST when ST
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Indicate whether the statement is true or false
Jessica is an agent for LMN Life Insurance Company
She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Brad's wife during the 1- or 2-year period following Brad's death. This period is known as the A) dependency period. B) estate clearance period. C) blackout period. D) readjustment period.