Question

Consider a six-month call option written on €100,000 with a strike price of $1.00 = €1.00. The current exchange rate is $1.25 = €1.00; The U.S. risk-free rate is 5% over the period and the euro-zone risk-free rate is 4%. The volatility of the underlying asset is 10.7 percent. What is value of d₁ using the Black-Scholes model?

The answer is 3.053

How do I get that?

Answer 1

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DERIVATIVES BINOMIAL - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins Σ AutoSum - Cut AC Wrap Text Calibri 11 General E Copy Fill В IUT Merge & Center Paste +.0 .00 .00 0 Conditional Format Cell Insert Delete Format Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox BI177 BE ВС BD BF BG ВН BI BJ ВК BL ВM BN ВО 176 177 178 ХО - $1.25 179 $1.00 180 K = DOLLAR RATE 181 0.05 r = rf = EURO RATE 182 0.04 183 0.107 [6/12] 184 T = 0.50 185 186 In (h/e 1-4+0.5 T d 187 188 189 d1 (In(1.25/1)+(0.05-0.04+0.5*(0.107)^2) *(0.5))/(0.107*(SQRT(0.5))) 190 d1 = 3.053192 191 192 3.053 [rounded as per answer] 193 d1 answer 194 Sheet2 RISK NEUTRAL Sheet3 Sheet1 BOND CURRENCY BULL SPREAD BINOMIAL BS II Rea (- 130% erences 10:40 WA ENG 29-10-2019