Consider the option on currency HKD against the USD: Current spot rate is HKD7.50 for 1

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Consider the option on currency HKD against the USD:

• Current spot rate is HKD7.50 for 1 USD

• Risk-free HKD rate of interest is 5% p.a.

• Risk-free USD rate of interest is 2% p.a.

• Volatility (σ) of the currency returns is 20% p.a.

• Maturity of the option is 3 months.

• Strike rate of the option is HKD8.00 for 1 USD

• The currency options are European in nature

Answer the following questions.

(i) How much does it cost to hold (i.e., buy) a call-HKD option? Use the Garman Kohlhagen model.

Related Book For answer-question

Spreadsheet Modeling & Decision Analysis A Practical Introduction to Management Science

ISBN: 978-0324656633

5th edition

Authors: Cliff T. Ragsdale

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Posted Date: Jun 15, 2023 02:31 AM

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Consider the option on currency HKD against the USD: Current spot rate is HKD7.50 for 1

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To calculate the cost of holding buying a call option on HKD against USD we can use the Garman Ko... View the full answer

Spreadsheet Modeling & Decision Analysis A Practical Introduction to Management Science

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