AdvancedMultiple choice
A desk is short a knock-out option to a client. How does it typically make its price conservative for the difficulty of hedging near the barrier?
- AIt prices with the barrier shifted closer to spot, making a knock-out more likely
- BIt prices with the barrier shifted away from spot
- CIt ignores the barrier and charges the vanilla price, which is always higher
- DIt charges nothing extra, because barrier options can always be hedged exactly with stock
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