A Futures price is currently €80. Over each of the next two 3 month periods it will rise or fall by 10%. The risk free rate is 8% p.a. (i)Using replicating portfolio techniques, find the value of a 6 month European call option on the futures with strike €80. (ii)Verify your answer using risk-neutral valuation. (iii) Would your answer change if the call was American? Why does part i and ii have different answers in the uploaded solution? If the question is asking to verify it should have the samer answer

A Futures price is currently €80. Over each of the next two 3 month periods it will rise or fall by 10%. The risk free rate is 8% p.a. (i)Using replicating portfolio techniques, find the value of a 6 month European call option on the futures with strike €80. (ii)Verify your answer using risk-neutral valuation. (iii) Would your answer change if the call was American? Why does part i and ii have different answers in the uploaded solution? If the question is asking to verify it should have the samer answer

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 3BIC

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A Futures price is currently €80. Over each of the next two 3 month periods it will rise or fall by 10%. The risk free rate is 8% p.a. (i)Using replicating portfolio techniques, find the value of a 6 month European call option on the futures with strike €80. (ii)Verify your answer using risk-neutral valuation. (iii) Would your answer change if the call was American?
A Futures price is currently €80. Over each of the next two 3 month periods it will rise or fall by 10%. The risk free rate is 8% p.a. (i)Using replicating portfolio techniques, find the value of a 6 month European call option on the futures with strike €80. (ii)Verify your answer using risk-neutral valuation. (iii) Would your answer change if the call was American? is this question valued as a future or a call option ? As in which Formula
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