Question

Consider a European put option on a currency. The exchange rate is $1.15 per unit of the foreign currency, the strike price is $1.25, the time to maturity is one year, the domestic risk-free rate is 0% per annum, and the foreign risk-free rate is 5% per annum. The volatility of the exchange rate is 0.25. What is the value of this put option according to the Black-Scholes-Merton model? Please provide your answer in the unit of dollar, to the nearest cent, but without the dollar sign (for example, if your answer is $1.02, write 1.02). Please provide your answer in the unit of dollar, to the nearest cent, but without the dollar sign (for example, if your answer is $1.02, write 1.02).

Answer 1

M/T/W/T/F /S /SU 21/11/2019 D Date European put option - exchange rate given = - starke price rosso = time to maturity - Rf of domestic curren y = Bf Of foreign curreny = volatility $ 1.15 $ 1.25 1 year 0% 5% 0.25 is value of Meston put model option using Black-Scholes A lent Do - xe khty [ 1- N[d)] - *&* [ 1- Nas jy de = ln ( 50 ) + (R4 + (0.5X6d) ]xt. where, de = di Love

M/T/W/T/F/S/SU Date. use = In place of Rf, you need to 1 Rf domestic - f foreign currency]. Callculating dy value, 16 die an [ 1:15 ] + || 0-0:09) + (0.5X0:259) 1. 0:25 V I. 125 pelbak = ene 0.92) +4-0:05+0:0313) 0.25 = ln 10.91) - 0.0188 - -00834 - 0-0188 St 0.25 to 30125 -= -0.1022 = -0.4087 0.95 2 ) = 0% у (сема (Cuhuland - ds = dy- (OVE will Betable) -0.4087-(0.250T) -0.6587 As the value of dy and dg a , the put option value cant be fount out, e nera
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As the value of d1 and d2 are negative, the put option value can't be found out using black scholes model.