Consider a six-month European call option on the spot price of gold, that is, an option to buy one ounce of gold in the spot market in six months. The strike price is $1, 200, the six-month futures price of gold is $1, 240, the risk-free rate of interest is 5% per annum, and the volatility of the futures price is 20%. The option is the same as a six-month European option on the six-month futures price. Calculate the value of this option
Consider a six-month European call option on the spot price of gold, that is, an option to buy one ounce of gold in the spot market in six months. The strike price is $1, 200, the six-month futures price of gold is $1, 240, the risk-free rate of interest is 5% per annum, and the volatility of the futures price is 20%. The option is the same as a six-month European option on the six-month futures price. Calculate the value of this option
Chapter21: International Cash Management
Section: Chapter Questions
Problem 18QA
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Consider a six-month European call option on the spot price of gold, that is, an option to buy one
ounce of gold in the spot market in six months. The strike price is $1, 200, the six-month futures
price of gold is $1, 240, the risk-free rate of interest is 5% per annum, and the volatility of the
futures price is 20%. The option is the same as a six-month European option on the six-month
futures price. Calculate the value of this option.
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