Potential advantages of futures options over spot options

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1. Calculate the value of an eight-month European put option on a currency with a strike price of 0.50. The current exchange rate is 0.52, the volatility of the exchange rate is 12%, the domestic risk-free interest rate is 4% per annum, and the foreign risk-free interest rate is 8% per annum.

2. (a) What are the potential advantages of futures options over spot options?

(b) How does the put-call parity formula for a futures option differ from put-call parity for an option on a non-dividend-paying stock?

(c) Suppose you buy a put option contract on October gold futures with a strike price of S1400 per ounce. Each contract is for the delivery of 100 ounces. What happens if you exercise when the October futures price is $1, 380?

Reference no: EM131501569

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