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A 6 month futures contract trades on orange juice futures. The current orange juice futures price...

A 6 month futures contract trades on orange juice futures. The current orange juice futures price is 1200, with volatility 18%. Interest rates are 0.5% (with continuous compounding). What is the price of a three month European put option with strike price 1210? Use the Black-Scholes formula to solve

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Expert Solution

Calculation of put price with the help of Black-Scholes formula

INPUTS Outputs Value
Standard deviation or Volatility (Annual) (σ) 18.00% d1 -0.03332
Time until Expiration (in Years) (t) 0.25 d2 -0.12332
Risk free rates (Annual) (r) 0.50% N(d1) 0.48671
Current orange juice futures price (S0) $ 1,200.00 N(d2) 0.45093
Strike price (X) $1,210.00 B/S call value (C ) 39.11175
Dividend yield 0 B/S Put Value (P) 47.60020

The price of a three month European put option is $47.60

Formulas used in excel calculation:

jeff jeffy answered 1 year ago
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