hard · Quantitative Finance derivatives
A binary (cash-or-nothing) call option pays $100 if S_T > K at expiry.
As the option approaches expiry while the stock price is very close to the strike, which of the following best describes the behavior of its Delta?
- Delta remains constant at 0.50, representing the probability of exercise.
- Delta spikes toward infinity, making the option difficult to hedge.
- Delta converges to the Delta of a vanilla call option.
- Delta decays to zero as time value disappears.
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