The correct answer is option C. The installation directory in DB2 is commonly known as the DB2_ROOT directory. This directory contains all the files and subdirectories required for the DB2 installation process. 

DB2 handles invalid XML characters within tags by escaping them with equivalent HTML entities. This ensures that the XML remains well-formed and can be processed correctly by XML parsers. Escaping involves replacing characters like '<' and '>' with their corresponding HTML entities such as '<' and '>'. 

User-defined functions in DB2 can contribute significantly to performance tuning efforts by leveraging the query optimizer. When properly designed and utilized, UDFs can enable the optimizer to generate efficient execution plans, leading to improved query performance. This allows DBAs to streamline database operations and enhance overall system performance. 

In disaster recovery planning, "RPO" stands for Recovery Point Objective. RPO refers to the maximum acceptable amount of data loss measured in time before a disaster occurs, which determines the frequency of data backups. 

Referential constraints in DB2 ensure that relationships between tables are maintained, thus preserving referential integrity. 

DB2 achieves scalability and performance optimization through techniques like partitioning data across multiple nodes, enabling parallel processing which distributes the workload and enhances performance. 

Organizations may opt for alternative IDEs over IBM Data Studio for managing DB2 databases in scenarios where specific database features are required that are not supported by IBM Data Studio. Additionally, factors such as preference for open-source solutions, cost considerations, and the need for extensive customization capabilities may lead organizations to explore other IDE options. For instance, if an organization requires advanced analytics capabilities or integrated machine learning tools, they may choose alternative IDEs that better fulfill these requirements. Similarly, organizations with strict regulatory compliance requirements may prefer vendor-specific solutions that offer specialized features tailored to compliance needs. 

Performance tuning in DB2 encompasses optimizing various aspects of the database system to enhance its efficiency and responsiveness. This involves leveraging optimization features within DB2 to fine-tune database configurations, query execution plans, and resource allocations for optimal performance. By effectively utilizing optimization features, DB2 administrators can improve query response times, reduce resource utilization, and enhance overall system throughput, ensuring optimal performance in demanding database environments. 

RTO stands for Recovery Time Objective in the context of disaster recovery. It represents the targeted duration within which a system or service must be restored after a disruption or failure. Achieving a low RTO is essential for minimizing downtime and ensuring business continuity during disaster recovery scenarios. 

Denormalization involves combining normalized tables to reduce redundancy and improve query performance by eliminating the need for excessive joins. This often leads to faster query execution.