What is the lower bound of a European call option on a futures contract where f₀ is the futures price and X is the exercise price? Assume f₀ is greater than X. A)the difference between f₀ and X B)zero C)the present value of the difference between f₀ and X D)the ratio of f₀ to X E)none of the above

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The lower bound of a European call option on a futures contract is the present value of the difference between the futures price (f) and the exercise price (X). This is because the call option holder has the right to buy the underlying asset at the exercise price, but only at the end of the option's life. Therefore, the difference between the futures price and the exercise price needs to be discounted back to the present time to determine the option's lower bound.

What Is the Lower Bound of a European Call Option