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    Value of a Call Option using Black Scholes Equation

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    Assume that the spot price of the British pound is $1.55, the annualized 30-day sterling interest rate is 10%, the annualized 30-day U.S. interest rate is 8.5%, and the annualized standard deviation of the dollar:pound exchange rate is 17%. Calculate the value of a 30-day PHLX call option on the pound at a strike price of $1.57.

    Please use Excel and include the file in the download to complete problem correctly.

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    Solution Preview

    Assume that the spot price of the British pound is $1.55, the annualized 30-day sterling interest rate is 10%, the annualized 30-day U.S. interest rate is 8.5%, and the annualized standard deviation of the dollar:pound exchange rate is 17%. Calculate the value of a 30-day PHLX call option on the pound at a strike price of $1.57.

    British Pound Spot Price $1.55
    Annual. 30-day sterling interest rate 10%
    Annual. 30-day U.S. interest ...

    Solution Summary

    The solution calculates the value of a Call Option using Black Scholes Equation. A 30-day PHLX call option is examined for a strike price.

    $2.19