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adell [148]
2 years ago
7

You wish to buy a Euro Call Option expiring in 6 months with a strike price of $1.35. The volatility of the $/Euro exchange rate

is expected to be 8.36% on an annualized basis. Currently the interest rate on the euro is currently 0.00% whereas it is 1.5% on the dollar. What is the price of this call option? What is corresponding Put Option worth? What happens to the price of both the Call and Put Option when the volatility goes to 10%. What are the new prices? What happens to the price of both the Call and Put Option as we get closer to the expiration date? What is the new price of the call if no other factors change but we are 3-months away from expiration?
Business
1 answer:
Dimas [21]2 years ago
3 0

Answer and Explanation:

Assuming Spot rate for EURUSD is $1.2328, the price of Call option is $0.0026 and and the corresponding Put option is $0.1099.

When Call option near maturity, price starts decreasing and nears 0 just before maturity, since it is about to mature and the time value goes on decreasing - price of the option is based upon majorly the intrinsic value. Price of Put option increases as and how it nears maturity.

At maturity = 3 months, price of Call option is $0.0003 and Put option is $0.1126.

Considering all other parameters being same, if volatility increases to 10.0%, price of Call option is calculated at $0.0052 and that of a Put option is $0.1124.

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On the other hand,agreement to sale is when the seller has agreed to sell the goods to the buyer in exchange for money but the buyer has not made the payment. In this case,the ownership of the goods is still with the seller . Therefore, in the case of John who is a subject of our discussion, John has bought the watch from the store and made payment for it.John has the right to enjoy the watch under the law. If the seller now wants to deny John the right to have value for his money.John had the right to seek redress in the court of law in defence of his right to have value for money by enjoying the watch which he had bought from the store with his hard earned money.

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