1. Use the Garman – Hohlhagen equations to approximately price a call option on a foreign currency, where:
The Spot rate is 187 (cents/¥), the Exercise price is 181 (cents/¥), the U.S. risk-free interest rate is 0.04, the Japanese risk-free interest rate is 0.06, the volatility (standard deviation) of the exchange rate is 0.12 per year, and the remaining time to maturity is 40 days.
A. 4.59
B. 5.61
C. 6.49
D. 7.13
E. 8.95
2. Use the Garman – Hohlhagen equations to approximately price a put option on a foreign currency, where:
The Spot rate is 187 (cents/¥), the Exercise price is 181 (cents/¥), the U.S. risk-free interest rate is 0.04, the Japanese risk-free interest rate is 0.06, the volatility (standard deviation) of the exchange rate is 0.12 per year, and the remaining time to maturity is 40 days.
A. 0.13
B. 0.93
C. 1.57
D. 1.99
E. 2.65