Define factor fx call or put option model price is function, Financial Management

Assignment Help:

List the arguments (variables) of which a FX call or put option model price is a function.  How does the call and put premium change with respect to a change in the arguments?

Answer:  Both put and call options are functions of just six variables:  St, E, ri, rus, T ands.  While all else remains similar, the price of a European FX call (put) option will raise:

a) The larger (smaller) is S,

b) The smaller (larger) is E,

c) The smaller (larger) is ri,

d) The larger (smaller) is rus,

e) The larger (smaller) rus is relative to ri, and

f) The greater is s.

While rus and ri are not very much different in size, a European FX call and put will increase in price while the option term-to-maturity increases.  Though, when rus is extremely much larger than ri, a European FX call will increase in price, although the put premium will decrease, while the option term-to-maturity increases.  The opposed is true while ri is very much greater as compared to rus.  For American FX options the analysis is less complex.  As a longer term American option can be exercised on any date which a shorter term option can be exercised, or a some later date, it follows that the all else remaining similar, the longer term American option will sell at a price as a minimum as large as the shorter term option.


Related Discussions:- Define factor fx call or put option model price is function

Enumerate the present value of an annuity, Enumerate the Present Value of a...

Enumerate the Present Value of an Annuity Present value of an annuity can be calculated by: Present Value = A [ {(1+i) n -1} / i (1+i) n ] Or to use the tables change

What is an audit?, Question 1 What is Depreciation? Question 2 What a...

Question 1 What is Depreciation? Question 2 What are the elements of an accounting system? Question 3 How do you prepare Flexible Budget? Question 4 Briefly explain

Aeromag, Our geologist, Rebecca Paulka, has estimated from the earlier expl...

Our geologist, Rebecca Paulka, has estimated from the earlier exploration that the Malian prospects have a 30% likelihood of containing economic quantities of uranium ore, the Nige

Computing the expected total return for investment, To compute the total ...

To compute the total returns we need the investment horizon, reinvestment rate and the price of the bond at the end of the investment horizon. Steps involved in computi

Lease, Lease A lease is a contractual arrangement allowing one party th...

Lease A lease is a contractual arrangement allowing one party the use of some exact assets for a specific times period in exchange for a payment it is same as a rental arrangem

Enumerate about the turnkey operations, Enumerate about the Turnkey operati...

Enumerate about the Turnkey operations An illustration of a turnkey business would be a franchise for example immediate brand, systems and product with exclusive territory. A t

Consigner for safe transportation of dangerous goods, Q. Consigner for safe...

Q. Consigner for safe transportation of dangerous goods? It is the responsibility of the consigner to ensure the following, 1. The goods carriage should have a valid registr

Total cost of operating the business, Joe's ice cream stroe has to decide w...

Joe's ice cream stroe has to decide whether to shut down this winter or stay open. His projected revenue is $1,200 per week. He has fixed costs (Mortgage, taxes, insurance, etc.) t

Calculate npv-irr - mirr - payback and discounted payback, Calculate NPV-IR...

Calculate NPV-IRR - MIRR - payback and discounted payback: 1-      Define and explain as well as you can of the following: a-      Goals and objectives of the Corporate Fir

Objectives and functions of asic, Objectives and Functions of ASIC The ...

Objectives and Functions of ASIC The objective of ASIC is to ensure the confident and informed participation of consumers in the financial system. To attain this objective, it

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd