When Valuing an Interest Rate Call Option, One Approach Is

question 27

Multiple Choice

When valuing an interest rate call option, one approach is to use the Black call option price adjusted for the present value

• A) over the m days of the underlying option using the continuously compounded forward rate.
• B) over the m days of the underlying rate using the continuously compounded spot rate.
• C) over the days remaining of the option using the continuously compounded forward rate.
• D) over the days remaining of the option using the continuously compounded spot rate.
• E) over the m days of the underlying rate using the continuously compounded forward rate.

---

Definitions:

Unemployment Rate

The percentage reflecting those who are in the labor force and are not employed, yet are seeking employment.

Cost-push Inflation

Inflation caused by an increase in prices of inputs like labour, raw material, etc. It’s when the supply side of the economy’s production function becomes more expensive.

Demand-pull Inflation

Inflation that occurs when the demand for goods and services exceeds their supply, leading to an increase in prices.

Demand-pull Inflation

A situation where inflation is caused by an increase in demand for goods and services, exceeding the available supply.