How is the fair value of a foreign currency option calculated?
A)by using the Box-Jenkins technique
B)using the principles of the Black-Scholes pricing model
C)through an arms-length transaction
D)using quotes given daily in the Wall Street Journal

Question

Quizplus · Accepted Answer

The fair value of a foreign currency option is typically calculated using the principles of the Black-Scholes pricing model, which takes into account factors such as the current exchange rate, the strike price, the time until expiration, and the volatility of the underlying currency pair. The other options listed (Box-Jenkins technique, arms-length transaction, and quotes in the Wall Street Journal) are not typically used for calculating the fair value of foreign currency options.

How Is the Fair Value of a Foreign Currency Option