Use the European option pricing formula to find the value of a six-month call option on Japanese yen.The strike price is $1 = ¥100.The volatility is 25 percent per annum; r_$ = 5.5% and r_¥ = 6%. A)0.005395 B)0.005982 C)$0.006137/¥ D)none of the options

Question

Quizplus · Accepted Answer

Using the European option pricing formula, we have:

d1 = [ln(S0/K) + (rS1U1B1¥S1U1B0 + σ²/2)T] / (σ√T)
d1 = [ln(1/100) + (0.06 + 0.25²/2)(0.5)] / (0.25√0.5) = -2.5507
d2 = d1 - σ√T = -2.5507 - 0.25√0.5 = -3.0901
N(d1) = 0.005644
N(d2) = 0.002090
C = SN(d1) - Ke^(-rS1U1B1T)N(d2) = 1*0.005644 - 100*0.002090*e^(-0.06*0.5) = $0.006137/¥

Use the European Option Pricing Formula to Find the Value