Find the Black-Scholes price of a six-month call option written on €100,000 with a strike price...

Find the Black-Scholes price of a six-month call option written on €100,000 with a strike price of $1.0000/€. The current exchange rate is $1.125/€. The U.S. risk-free rate is 2 percent over the period and the euro-zone risk-free rate is 1 percent. The volatility of the underlying asset is 10.5 percent.

$0.1309/€

$0.1682/€

$0.1452/€

$0.0016/€

Solutions

Expert Solution

Strike Price = $1.00/Euro

Stock Price = $1.125/Euro

Risk Free Rate in $ = 2%

Risk Free Rate in Euro = 1%

Volatility = 10.5%

Time to Maturity = 6 Months i.e. 0.5 Years

Net Risk Free Rate = 2% - 1% = 1%

Value of Call Option would be $0.13 / Euro. Thus Option (a) i.e. $13.09 / Euro is correct.

jeff jeffy answered 1 year ago

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