In: Finance
Pricing Currency Options on the Euro |
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A U.S.-based firm wishing to buy |
A British firm wishing to buy |
||||||||
or sell euros (the foreign currency) |
or sell dollars (the foreign currency) |
||||||||
Variable |
Value |
Variable |
Value |
||||||
Spot rate (domestic/foreign) |
S0 |
$ |
1.8674 |
S0 |
£ |
0.5355 |
|||
Forward rate (domestic/foreign) |
F0 |
$ |
1.8533 |
F0 |
£ |
0.5396 |
|||
Strike rate (domestic/foreign) |
X |
$ |
1.8000 |
X |
£ |
0.5556 |
|||
Domestic interest rate (% p.a.) |
rd |
1.453 |
% |
rd |
4.525 |
% |
|||
Foreign interest rate (% p.a.) |
rf |
4.525 |
% |
rf |
1.453 |
% |
|||
Time (years, 365 days) |
T |
0.247 |
T |
0.247 |
|||||
Days equivalent |
90.00 |
90.00 |
|||||||
Volatility (% p.a.) |
s |
9.400 |
% |
s |
9.400 |
% |
|||
d1 |
0.64800 |
d1 |
-0.60212 |
||||||
d2 |
0.60128 |
d2 |
-0.64884 |
||||||
N(d1) |
0.74151 |
N(d1) |
0.27355 |
||||||
N(d2) |
0.72617 |
N(d2) |
0.25822 |
||||||
Call option premium (per unit fc) |
c |
$ |
0.0669 |
c |
£ |
0.0041 |
|||
Put option premium (per unit fc) |
p |
$ |
0.0138 |
p |
£ |
0.0199 |
|||
(European pricing) |
|||||||||
Call option premium (%) |
c |
3.58 |
% |
c |
0.77 |
% |
|||
Put option premium (%) |
p |
0.74 |
% |
p |
3.72 |
% |
PrintDone
U.S. Dollar/British Pound. Assuming the same initial values for the dollar/pound cross rate in this table
how much more would a call option on pounds be if the maturity increases from 90 to 180
days? What percentage increase is this for the length of maturity?
If the maturity increases from 90 to 180 days, a call option on pounds would be $
Pricing Currency Options on the Euro |
||||||||||
A U.S.-based firm wishing to buy |
A British firm wishing to buy |
|||||||||
or sell pounds |
or sell dollars |
|||||||||
Variable |
Value |
Variable |
Value |
|||||||
Spot rate (domestic/foreign) |
S0 |
$1.8674 |
S0 |
£0.5355 |
||||||
Forward Rate (Domestic/Foreign) |
F0 |
$1.8393 |
F0 |
£0.5437 |
||||||
Strike rate (domestic/foreign) |
X |
$1.8000 |
X |
£0.5556 |
||||||
Domestic interest rate (% p.a.) |
rd |
1.453% |
rd |
4.525% |
||||||
Foreign interest rate (% p.a.) |
rf |
4.525% |
rf |
1.453% |
||||||
Time (years, 365 days) |
T |
0.493 |
T |
0.493 |
||||||
Days equivalent |
180.00 |
180.00 |
||||||||
Volatility (% p.a.) |
s |
9.400% |
s |
9.400% |
||||||
d1 |
0.3604 |
-0.36 |
d1 |
-0.29 |
0.29 |
|||||
d2 |
0.2944 |
-0.29 |
d2 |
-0.36 |
0.36 |
|||||
N(d1) |
0.6407 |
0.36 |
N(d1) |
0.38 |
0.62 |
|||||
N(d2) |
0.6158 |
0.38 |
N(d2) |
0.36 |
0.64 |
|||||
Call option premium (per unit fc) |
c |
$0.0696 |
c |
£0.0091 |
||||||
Put option premium (per unit fc) |
p |
$0.0306 |
p |
£0.0207 |
||||||
(European pricing) |
||||||||||
Call option premium (%) |
c |
3.73% |
c |
1.70% |
||||||
Put option premium (%) |
p |
1.64% |
p |
3.87% |
||||||
Pricing Currency Options on the Euro |
||||||||||
A U.S.-based firm wishing to buy |
A British firm wishing to buy |
|||||||||
or sell euros |
or sell dollars |
|||||||||
Variable |
Value |
Variable |
Value |
|||||||
Spot rate (domestic/foreign) |
S0 |
$ |
1.8674 |
S0 |
£ |
0.5355 |
||||
Forward rate (domestic/foreign) |
F0 |
$ |
1.8533 |
F0 |
£ |
0.5396 |
||||
Strike rate (domestic/foreign) |
X |
$ |
1.8 |
X |
£ |
0.5556 |
||||
Domestic interest rate (% p.a.) |
rd |
1.453 |
% |
rd |
4.525 |
% |
||||
Foreign interest rate (% p.a.) |
rf |
4.525 |
% |
rf |
1.453 |
% |
||||
Time (years, 365 days) |
T |
0.247 |
T |
0.247 |
||||||
Days equivalent |
90 |
90 |
||||||||
Volatility (% p.a.) |
s |
9.4 |
% |
s |
9.4 |
% |
||||
d1 |
0.648 |
d1 |
-0.60212 |
|||||||
d2 |
0.60128 |
d2 |
-0.64884 |
|||||||
N(d1) |
0.74151 |
N(d1) |
0.27355 |
|||||||
N(d2) |
0.72617 |
N(d2) |
0.25822 |
|||||||
Call option premium (per unit fc) |
c |
$ |
0.0669 |
c |
£ |
0.0041 |
||||
Put option premium (per unit fc) |
p |
$ |
0.0138 |
p |
£ |
0.0199 |
||||
(European pricing) |
||||||||||
Call option premium (%) |
c |
3.58 |
% |
c |
0.77 |
% |
||||
Put option premium (%) |
p |
0.74 |
% |
p |
3.72 |
% |
||||
Call option premiums for a U.S. based firm buying call options on the British pounds |
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180-day maturity ($/pound) |
0.06962 |
|||||||||
90-day maturity ($/pound) |
0.06690 |
|||||||||
Difference |
0.00272 |
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The maturity doubled while the option premium rose by:00272/0.06962 |
3.90% |