Exotic Options

The objective of this is to value a STRAP option

You will calculate the value of these option strategies using the Black Scholes model.

You will use the exchange rate of the currency of CHINA with the US Dollar.

You will have to show your work on Excel

$1/$ On your spreadsheet, you should clearly show the value of the different factors:

S is the spot price. For example, if your country is Switzerland, then your spot price is $0\mathrm{.}90$ CHF$/$USD$.$ The Swiss Franc will be the domestic country.So$,$

$$ A call will be a European USD call $/$ CHF put option

$$ A put will be a European USD put $/$ CHF call option

K the strike price: depending on what you have to value, choose strike prices that are not too far $($like one or two points away$)$ from the current exchange rate.

Of course, for combination of options, you have to also select multiple strike prices. Consequently, make your selection in a way that the spot price is close to the $$middle$$ of the combination I am asking to value.

r the risk$-$free rate: on the web you can find the government rate of your country.

$\backslash$sigma the volatility of the return of the change of exchange rate.

T$-$t the time remaining before expiration: assume that it is $3$ months

What you get is daily volatility. However, in the exercise, you need the volatility for each step which is monthly.

Considering that you have $252$ trading days during the year, it means that there are $84$ days for $3$ months.

Then the volatility you are going to use for $1$ month.

$2/$ Show on your spreadsheet your calculation of the option strategy selected using the Black Scholes Model.

$3/$ On a graph, show the value of that option strategy depending on the current exchange rate, other factors staying constant.