Question

Determine the value of a put option on the JPY that has the following characteristics: (a) is a European type, (b) matures in six months, and (c) has the strike price of USD 0.010. In the spot market, the JPY is trading at USD 0.009. The U. S. and Japanese interest rates are 4 percent and 1 percent, respectively (continuous compounding). The JPY has an annual standard deviation of 11 percent. (use x.xxxxx)

Answer 1

The put option can be valued using the Black Scholes Method as per formula below:

p=ke" N(-d,)-S, N(-d) where di In(S/K)+(r+62/2) - OST d. - In(S/K)+(r-62/2) 2, OVT

Please see the snapshot from my excel file. Please see the table below. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output.

으 21 Inputs 22 S 23 T 24 o 26 Risk free rate, 27 Output 28 d1 29 d2 30 N(-d1)= 31 N(-d2) 32 Value of put option, p 0.009 0.500 6 months maturity 11% 0.010 Strike price of the put option 3% U. S. interest rate - Japanese interest rate = 4% - 15 = 3% Values Formula Used - 1.122827916 =(LN(C22/C25)+(C26+C24^2/2)*C23)/(C24*SQRT(C23)) -1.200609662 =C28-C24*SQRT(C23) 0.869244707 ENORMSDIST(-C28) 0.885048674 =NORMSDIST(-C29) 0.00090 =C25 EXP-C26C23)C31-C22°C30

Hence, please enter $ 0.00090 in the answer box.