Price of similar call option that expires immediately

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Reference no: EM131538258

1) Use the Black-Scholes formula to calculate the value of a European call option on silver futures. The option matures in six months. The current nine-month futures price is $10 per oz, the strike price of the option is $8, the risk free interest rate is 12% per annum and the volatility of the futures price is 18% per annum. Use the NORM.S.DIST(x) function in Excel. Round to two decimals.

2) What is the delta of the call option on the futures contract from Problem #1?

3) Use the information from Problem #1. What is the price of a similar call option that expires immediately? That is, K=8 and T is approximately 0.

Hint: Take the limit of the call price as T goes to zero.

Reference no: EM131538258

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