A contract whose payoff increases as a yield spread increases above some stated exercise spread is a
A)put option.
B)call option.
C)digital default option.
D)futures option.
E)credit spread call option.

Question

Quizplus · Accepted Answer

A credit spread call option is a type of option where the payoff increases as the spread between the yield of the underlying asset and the risk-free rate widens. The exercise spread is the threshold at which the option is in-the-money, and the payoff is calculated based on the difference between the actual spread and the exercise spread. Therefore, the correct answer is E.

A Contract Whose Payoff Increases as a Yield Spread Increases