Value of put option is 0.094265 $/GBP
4. (4 points) The currency exchange rate for GBP is $1.25 per pound. The risk free...
Consider a European put option on a currency. The exchange rate is $1.15 per unit of the foreign currency, the strike price is $1.25, the time to maturity is one year, the domestic risk-free rate is 0% per annum, and the foreign risk-free rate is 5% per annum. The volatility of the exchange rate is 0.25. What is the value of this put option according to the Black-Scholes-Merton model?
Consider a European put option on a currency. The exchange rate is $1.20 per unit of the foreign currency, the strike price is $1.25, the time to maturity is one year, the domestic risk-free rate is 0% per annum, and the foreign risk-free rate is 5% per annum. The volatility of the exchange rate is 0.25. What is the value of this put option according to a one-step binomial tree?
Consider a European put option on a currency. The exchange rate is $1.15 per unit of the foreign currency, the strike price is $1.25, the time to maturity is one year, the domestic risk-free rate is 0% per annum, and the foreign risk-free rate is 5% per annum. The volatility of the exchange rate is 0.25. What is the value of this put option according to the Black-Scholes-Merton model? Please provide your answer in the unit of dollar, to the...
(5 points) The value of S&P 500 is currently 2800. The risk-free interest rate is 2.7% per year with continuous compounding. The dividend yield of S&P 500 is 1.92% per year. The volatility of S&P 500 is 21%. Compute the prices of 6-month at-the-money European call and put options in the Black-Scholes-Merton model. (Keep 6 digits after the decimal point in your calculations) I. (5 points) The value of S&P 500 is currently 2800. The risk-free interest rate is 2.7%...
Suppose the current exchange rate is $ 1.77 divided by pound $1.77/£, the interest rate in the United States is 5.41 % 5.41%, the interest rate in the United Kingdom is 4.12 % 4.12%, and the volatility of the $/£ exchange rate is 10.3 % 10.3%. Use the Black-Scholes formula to determine the price of a six-month European call option on the British pound with a strike price of $ 1.77 divided by pound $1.77/£. The corresponding forward exchange rate...
In currency markets the letters CAD refers the Canadian dollar whereas USD refers to the US dollar. The CAD/USD spot exchange is 1.40. The continuously compounded risk free rate in both countries is 0.25%. The volatility of price changes in the exchange rate is 25%. Using Black-Scholes, determine the price of 1-year European call option (in CAD) to buy USD if the CAD/USD strike is 1.5. a) 0.04 c) 0.08 e) 0.12 b) 0.06 d) 0.10
Suppose that the exchange rate (spot price) of Euro in GBP (British Pound) is GBP 0.95. In addition, assume that you can freely borrow and lend in GBP for any maturity at a rate of 2% per annum and that you can do the same in Euro at a rate of 1% per annum. Both rates are continuously compounded rates. Given these assumptions: Compute the forward price (exchange rate) of the GBP in Euro for delivery of the GBP in...
Currently the spot exchange rate is $1.558 per pound (USD/GBP). The interest rate in the UK is 6%. The one-year forward exchange rate is $1.5200/GBP. If interest rate parity holds, what must be the US interest rate for the same period?
6) Consider an option on a non-dividend paying stock when the stock price is $38, the exercise price is $40, the risk-free interest rate is 6% per annum, the volatility is 30% per annum, and the time to maturity is six months. Using Black-Scholes Model, calculating manually, a. What is the price of the option if it is a European call? b. What is the price of the option if it is a European put? c. Show that the put-call...
5. Suppose that the current value of the S&P 500 stock index is USD 2600. Assume that the per annum rates of interest in USD and GBP(British Pound) are respectively 3% and 2% on a continuously compounded basis, and that the S&P 500 index pays a continuous dividend rate of 2% per annum. Finally, the spot exchange rate is USD1.3 per GBP. a) Compute the forward price of the S&P 500 in USD for delivery in one year. for delivery...