Question
Determine the value of a put option on the CAD that has the following characteristics: 1)The type is European 2)It matures in 6 months 3)The
Determine the value of a put option on the CAD that has the following characteristics: 1)The type is European 2)It matures in 6 months 3)The strike price is USD 0.95. In the spot market the CAD is trading at USD 0.92. The US and Canadian interest rates are 4% and 6%. The CAD has an annual standard deviation of 12%.
1) Write out fully the general form of the Black-Scholes formula for a European put.
2) Write down the expression for the put-call parity relationship.
3) Write the BS formula for the European put by plugging in for the specific parameter values of the European put given above.
4) Provide the value (price) for the European call option given by the put-call parity condition.
5) Provide the value (price) for the European put given above.
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