Find the Black-Scholes Price of a Six-Month Call Option Written

question 1

Multiple Choice

Find the Black-Scholes price of a six-month call option written on €100,000 with a strike price of $1.00 = €1.00. The current exchange rate is $1.25 = €1.00; The U.S. risk-free rate is 5% over the period and the euro-zone risk-free rate is 4%. The volatility of the underlying asset is 10.7 percent.

• A)C_e = $0.63577
• B)C_e = $0.0998
• C)C_e = $1.6331
• D)none of the above

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Definitions:

Residuals

The differences between observed values and the values predicted by a regression or other statistical model.

Parabolic Shape

The shape of the graph of a quadratic function, resembling a curve that opens upwards or downwards.

Linearity

The attribute of a relationship or function that can be graphically represented as a straight line, indicating a constant rate of change.