Question
a) Using the formula of Garman-Kolhagen (1983), calculate the price of a call on the exchange rate knowing the following information: - spot exchange rate
a) Using the formula of Garman-Kolhagen (1983), calculate the price of a call on the exchange rate
knowing the following information:
- spot exchange rate I 58S / E; strike price 1.60S / E; USD rate: 3.1%: GBP rate: 4.05: volatility:
1996: maturity: 0.25 year.
b) From your results obtained in a), calculate the Delta, Gamma, Theta, Elasticity, Vega and Rbo
of the option.
c) Define and explain what implied volatility is under the Garman-Kolkagen formula.
d) Define the different types of exotic options on exchange rates.
e) Establish valuation formulas for a currency swap in terms of bond portfolio and
FRA. From the following information, calculate the value of this swap in terms of FRA:
-A financial institution has entered into an annual payment swap whereby it receives 5.29t in yen and draws
8.4% in US dollars. Spot exchange rate: 11 IV / S; the LIBOR / Swap term structure is flat: rates
US interest rate: 9.25th. Japanese interest rate: 4.3% 6; main: US 10.75 million and US $ 1.23 billion
meaning: the remaining dune of life was years old
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