Question
The table below shows the premiums for several currency options (all the options are maturing in 9 months): Option strike price GBP 0.55 for 1
The table below shows the premiums for several currency options (all the options are maturing in 9 months):
|
| Option strike price GBP 0.55 for 1 SGD | Option strike price GBP 0.65 for 1 SGD |
| Call on SGD | GBP 0.0641 | GBP 0.0203 |
| Put on SGD | GBP 0.0207 | GBP 0.0746 |
The spot currency rate on the day when all the above options are priced is GBP 0.58 for 1 SGD.
- Calculate the current premium for a 9-month maturity call option on GBP with strike price of GBP 0.55 for 1 SGD. Show your working. [3 marks]
Suppose that you hold the call option on GBP specified in part (i) above until maturity. On maturity, the spot currency rate is GBP 0.52 for 1 SGD. What is your terminal payoff?
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Personal Financial Planning
Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley
12th Edition
1439044473, 978-1439044476
