Scholes option pricing technique to pricing currency options

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Reference no: EM131594061

1. According to the Black and Scholes option pricing formula________.

A- The value of the option as a function of the stock price is independent

B- The expected return on the option will depend on the return to the stock

C- An increase in maturity has the same effect on the value of an option as an equal domestic interest rate and the variance of the stock price.

D- Two of the above (a-c)

E- All of the above (a-c)

2- What additional assumptions must be added to the black and Scholes option pricing their technique to pricing currency options?

a- The spot exchange rate is log normally distributed.

b- The forward exchange is log normally distributed.

c- Interest rate follow a random walk

d- Two of the above

e- All of the above

Reference no: EM131594061

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