Answer-first summary for fast verification
Answer: Neither the floating (strike) lookback option nor the shout option can expire underwater
**Correct answer: C** - A shout option is a **path-dependent** option that lets the holder lock in a value by "shouting" once during the life of the option. - **A** is false: shouting arbitrarily is not always optimal; the holder should shout when it is beneficial. - **B** is false: shout options can be written on both calls and puts. - **C** is true: both floating-strike lookbacks and shout options have payoffs that are non-negative, so they do not expire underwater. - **D** is false: the Black-Scholes formula is not well-suited for shout options because of their path dependence.
Author: Manit Arora
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Q-18.1 In regard to a shout option, which of the following statements is TRUE?
A
It is always better to shout arbitrarily, when in the money, than to never shout.
B
A shout option must be a call
C
Neither the floating (strike) lookback option nor the shout option can expire underwater
D
The Black-Scholes formula is best suited to pricing a shout
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