Find the input d₁ of the Black-Scholes price of a six-month call option written on €100,000 with a strike price of $1.00 = €1.00. The current exchange rate is $1.25 = €1.00; The U.S. risk-free rate is 5% over the period and the euro-zone risk-free rate is 4%. The volatility of the underlying asset is 10.7 percent. A)d₁ = 0.103915 B)d₁ = 2.9871 C)d₁ = -0.0283 D)none of the above

Question

Quizplus · Accepted Answer

Using the Black-Scholes formula, we have: d₁ = (ln(S/K) + (r_f - r_d + (σ^2/2)) * T)/(σ * sqrt(T)) where S = €100,000 K = $1.00 = €1.00 r_f = 5% (U.S. risk-free rate) r_d = 4% (euro-zone risk-free rate) σ = 10.7% (volatility) T = 6/12 = 0.5 (time to expiration in years) Substituting the values, we get: d₁ = (ln(100000/1.00) + (0.05 - 0.04 + (0.107^2/2)) * 0.5)/(0.107 * sqrt(0.5)) = 0.103915 Therefore, the best choice is A.

Find the Input D1 of the Black-Scholes Price of a Six-Month

Find the Input D₁ of the Black-Scholes Price of a Six-Month