The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate.

Question

Quizplus · Accepted Answer

This statement is true. The lower bound of a call option premium cannot be negative, so it is either zero or the difference between the spot rate and the exercise price. Similarly, the upper bound of a currency call option is the spot rate, as the option cannot be worth more than the current value of the underlying currency.

The Lower Bound of the Call Option Premium Is the Greater