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Options Pricing for 12-month call option

A.Use options pricing model to calculate the theoretical value of a 12-month Call Option on the British Pound with a strike price of $1.65 per pound.

b. Use same model to calculate the theoretical value of a 1-month Put Option on the Japanese Yen with a strike price of $0.74 per Yen 100.

Note: use LIBOR interest rates and data based on market close, February 2, 2007. Also, use excel spread sheet and explain how get and read information from LIBOR.

Solution Preview

London Interbank Offered Rate (or LIBOR, pronounced LIE-bore) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). Information about ...

Solution Summary

The solution uses options pricing model to calculate the theoretical values of a 12-month call option. THe same model is used to calculate the theoretical value of a 1-month Put option.

$2.19