Explain how the Black model, which is designed for pricing options on futures contracts, can be used

Question:

Explain how the Black model, which is designed for pricing options on futures contracts, can be used for pricing interest rate options?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Introduction To Derivatives And Risk Management

ISBN: 9781305104969

10th Edition

Authors: Don M. Chance, Robert Brooks

See More Books

Question Posted: Apr 07, 2016 08:40 AM

See More Questions

Explain how the Black-Scholes-Merton model has been extended to allow for multiple bond issues in a corporations debt structure.
Explain how the Black-Scholes-Merton model has been extended to overcome the assumption that default can only occur at maturity.
Describe two problems in using the Black option on futures pricing model for pricing options on Eurodollar futures?
Consider the problem of minimizing (x, y) = x subject to g(x, y) = (x 1) 3 y 2 = 0. (a) Show, without using calculus, that the minimum occurs at P = (1, 0). (b) Show that the Lagrange condition P =...
The income statement and additional data of Office World, Inc., follow: Additional data: a. Collections from customers are $ 15,000 less than sales. b. Payments to suppliers are $ 1,600 more than the...
You have just bought a used track-type tractor to add to your production fleet. The initial capitalized value of the tractor is $110,000. The estimated service life remaining on the tractor is 10,000...
A simply supported, specially orthotropic plate is subjected to an in-plane compressive load per unit length $N_{x}$ and an in-plane tensile load per unit length $N_{y}=-0.5 N_{x}$ as shown in...
The following data were gathered to use in reconciling the bank account of Conway Company: Balance per bank ............$23,900 Balance per company records....... 8,700 Bank service charges...
Directions and Info for Building 1. Use a program where you can draw and type, like pages, or you can draw this out on a piece of paper and take a picture to submit. 2. You will begin with the...
Like DFS, online DFS is incomplete for reversible state spaces with infinite paths. For example, suppose that states are points on the infinite two-dimensional grid and actions are unit vectors (1,...
A bank currently holds a loan with a principal of $ 12 million. The loan generates quarterly interest payments at a rate of LIBOR plus 300 basis points, with the payments made on the 15th of...
The following term structure of LIBOR is given. a. Find the rate on a new 6 ( 9 FRA. b. Consider an FRA that was established previously at a rate of 5.2 percent with a notional amount of $30 million....
Ms. Simms made deposits of $540 at the end of every three months into a savings account. For the first five years interest was 5% compounded quarterly. Since then the rate of interest has been 5.5%...
The Supplier Preferencing Model tried to classify how a Supplier views your organisation in terms of attractiveness of account and relative spend. Suppliers may view your company as Core,...
Supply chain Management - Purchasing report Aritzia company: Description of Supplier sourcing strategies Description of the vendor evaluation and development program? Is the program effective?
t has been discovered that a certain cornfield created in the 1 8 th - century was a right triangle. One leg of the triangle was formed by a 6 0 ft long walking trail. The hypotenuse of the triangle...
Described how you "set realistic expectations about the cost-schedule- scope equilibrium" (Verzuh, 2021, p. 37) using the "project life cycle" (Verzuh, 2021, pp. 40- 41) for a new product being...
4. Let the table with the following training data be given. Num. X1 X2 Class 1 6 1 0 2 7 3 0 3 8 2 0 4 st 9 0 0 5 8 4 1 6 8 6 1 7 9 2 1 8 9 5 1 In the following, use the Manhattan distance d(a, b),...
Aggregate planning identifies the resources needed by operations during a specified time period. Once these resources have been authorized, operations must make do or justify any deviations from the...
Evaluate the line integral, where C is the given curve. C x 2 dx + y 2 dy, C consists of the arc of the circle x 2 + y 2 = 4 from (2, 0) to (0, 2) followed by the line segment from (0, 2) to (4, 3)
Refer to Problem 16-1. What additional funds would be needed if the companys year-end 2008 assets had been $4 million? Assume that all other numbers are the same. Why is this AFN different from the...
Refer to Problem 16-1 and assume that the company had $3 million in assets at the end of 2008. However, now assume that the company pays no dividends. Under these assumptions, what additional funds...
Austin Grocers recently reported the following 2008 income statement (in millions of dollars): Sales $700 Operating costs including depreciation 500 EBIT $200 Interest 40 EBT $160 Taxes (40%) 64 Net...
Given the matrix A -3 0 -14 3 4 6 9115 7701 a) Determine all solutions of the homogeneous system Ax = 0. b) Determine if the columns of A span R.
Summarize each data source and include them for substance abuse and alcohol in the military. Analyze each data source for substance abuse and alcohol in the military for trustworthiness and accuracy....
On January 1, 2023, Holland Corporation paid $7 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland's outstanding voting stock, representing a 60 percent...

Explain how the Black model, which is designed for pricing options on futures contracts, can be used

Question:

Step by Step Answer:

While the Black model is designed to price options on futures it can be adapted to price interest ra...View the full answer

Introduction To Derivatives And Risk Management

Students also viewed these Finance questions