Underlying stock with identical characteristics otherwise

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Two colleagues Fischer and Myron bought options to speculate. Fischer bought a Bermudan call option where early exercise is only available in the last 6 months, while Myron bought a lockout call option with a lockout period for the first 15 months.

1. Both options have a 2-year maturity, are on the same underlying stock with identical characteristics otherwise. Which is more expensive? Why?

2. Myron claimed that it is impossible that Fischer's option yields a higher payoff than his own. Is he correct? If he is correct, explain way, if not, describe a counterexample.

3. Their friend Robert is also interested in speculating and told Fischer and Myron he plans to buy 6-month American call options. However, Robert only wants this option if a certain corporate event causes the price to jump to some price, "B". Fischer and Myron suggest that Robert purchases an exotic option instead. What exotic option could Robert buy to fulfill his needs? How much would this option cost compared to Robert's original choice?

Reference no: EM133495869

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