Calculate the value of a 4 -year European call option on bond that will mature 5 years
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Calculate the value of a 4 -year European call option on bond that will mature 5 years from today using Black's model. The 5 -year cash bond price is \(\$ 105\), the cash price of a 4 -year bond with the same coupon is \(\$ 102\), the strike price is \(\$ 100\), the 4 -year risk-free interest rate is \(10 \%\) per annum with continuous compounding, and the volatility for the bond price in 4 years is \(2 \%\) per annum.
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