
Explanation:
Correct answer: False
For a knock-out option, the option becomes worthless if the barrier is breached.
If the asset price is observed less frequently, there are fewer chances to detect a barrier breach. That means the option is less likely to be knocked out, so its value generally increases, not decreases.
So decreasing monitoring frequency from continuous to daily does not decrease the value; it tends to increase it.
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Question 15.02. True or false: Decreasing the frequency with which the asset price is observed for a barrier option (e.g., from continuous to daily) will DECREASE the value of a knock-out option
A
True
B
False