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Basic Question 1 of 12
A forward contract is priced at $129. A European option on the forward contract has an exercise price of $135 and expires in 49 days. The continuously compounded risk-free rate is 3.75% and volatility is 0.25. Calculate the prices of a call option and a put option on the forward contract.
User Contributed Comments 4
| User | Comment |
|---|---|
| danlan2 | 129 is the future price. |
| NIKKIZ | It seems to me that there's a bit missing from the calculation of N(d1). I think it should be: {ln(129/135)+[0.0375+(0.25^2/2)]0.13425}/[0.25 X 0.13425^0.5]. The answer would be -0.39553. Am I missing something? |
| Greatrussian | NIKKIZ: The risk free rate 0.0375 should not be used in the calculation of d1. |
| maxsouto | NIKKIZ: The value of an option can't be less than 0 |
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Learning Outcome Statements
describe how the Black model is used to value European options on futures;
describe how the Black model is used to value European interest rate options and European swaptions;
CFA® 2025 Level II Curriculum, Volume 5, Module 32.