Which of the following best describes a shout option?

[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.]

Which of the following best describes a shout option?
A . an option in which the holder of the option has the right to reset the strike price to be at-the-money once during the life of the option
B . an option which kicks in as a plain vanilla option if the underlying hits an agreed threshold
C . an option in which the buyer of the option has the option to extend the expiry of the option upon the payment of an extra premium
D . an option whose expiry is automatically extended if it finishes out of the money.

View Answer

Answer: A

Explanation:

Choice ‘c’ correctly describes a ‘holder extendible option’. Choice ‘d’ describes a ‘writer extendible option’. Choice ‘a’ describes a ‘shout option’. Choice ‘b’ describes a ‘knock in’ option.