Currency Options - Underlying Volatility

Related BrainMass Solutions

• Options, Futures and Derivatives Problem

  An example of a hedging instrument that the manager can use to protect the entire portfolio from currency volatility is to buy foreign currency (FX) options against the possibility that the GBP will depreciate vis-a-vis the US dollars and the euro.

• Find the Black-Scholes price for a six month call option

  The B-S formula for currency options is the following: c = S*exp(-rf(T-t))*N(d1) - X*exp(-r(T-t))*N(d2) where S is the underlying price (current exchange rate) = $1.25 rf is the foreign interest rate = 0.04 r is the domestic interest rate =

• Risk Management

  In fact the volatility surface of a given underlying instrument depends on, among other things, its historical distribution and is constantly re-shaping as investors, market-makers, and arbitrageurs re-evaluate the probability of the underlying instrument

• Options, Futures and Derivatives- international currency

  The purest way to hedge currency risk is through FX options. Since those are available, we will use them. FX options are much like stock options, except with FX rates as the underlying instead of stock prices.

• Volatility

  This is known as implied volatility. Implied volatility is calculated by reverse engineering using the trading data of options.

• Options Pricing

  4th Quarter underlying stock price $111 $109 assumptions when buying options:expected fairly major movement in the stock price QUESTIONS TO ANSWER need to compare versus historical volatility of underlying stock does the

• Project: Volatility Smiles in Options Markets

  5075 Project: Volatility Smiles in Options Markets This project is about volatility smiles in options markets.

• Black-Scholes and Binomial Option Pricing Models

  Variable that Impact Pricing of Options There are five variables that impact on the options price. These variables include underlying price, the volatility, the risk free rate, the exercise price and the last is time to maturity.

• Models for Price Call Options

  It develops a binominal distribution and recombining tree for its underlying stock prices. In this tree, all probable paths can be represented during the whole life of the options (Rouah & Vainberg, 2012).