Assuming the same initial values for the dollar/pound cross rate in the FX Option Pricing workbook, how
Question:
Assuming the same initial values for the dollar/pound cross rate in the FX Option Pricing workbook, how much more would a call option on pounds be if the maturity was doubled from 90 to 180 days? What percentage increase is this for twice the length of maturity?
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) A European firm wishing to buy or sell dollars (the foreign currency) Variable Variable Value $1.2480 $1.2500 1.453% 2.1 87% alue Spot rate (domestic/toreign) Strike rate (domestic/toreign) Domestic interest rate (% pa) Foreign interest rate (% pa) Time (years, 365 days) 0.8013 21 87% 1.453% 1.000 365.00 1.000 365.00 10.500% $0.0461 $0.0570 Volatility (% pa) Call option premium (per unit fc) 0.0366 0.0295 European pricing) Call option premium (%) 456% 4.57% 3.68%
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Pricing Currency Options on the British pound A USbased firm wishing to buy A British f...View the full answer
Fundamentals of Multinational Finance
ISBN: 978-0205989751
5th edition
Authors: Michael H. Moffett, Arthur I. Stonehill, David K. Eiteman
Related Video
A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.
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