Derivatives by unknow

Author:unknow
Language: eng
Format: epub
ISBN: 9781119595656
Publisher: Wiley
Published: 2019-10-07T00:00:00+00:00

Question 5

The index futures price is . An American put option on the futures index has , p.a. (continuously compounded), p.a., year (4 months).

Use a tree with steps to calculate the ‘up’ and ‘down’ moves for the futures price and show that the price of the American put is .

Question 6

The spot FX-rate is ($/£, USD per GBP). An American put option on the USD has (USD/GBP), the interest rate in the US is p.a. (continuously compounded), the volatility of the USD-GBP spot exchange rate p.a., the option has year to maturity and the interest rate in the UK is p.a. (continuously compounded).

Use a tree with steps to calculate the ‘up’ and ‘down’ moves for the spot FX-rate and show that the price of the American put is (USD/GBP).

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