1. Which of the following options (they all have the same expiry) have the largest vega when the underlying stock is currently trading at $80?
Put option on a $100 strike price
Call option on a $120 strike price
Put option on a $120 strike price
Call option on a $80 strike price
Put option on a $60 strike price.
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