Parameters relevant for pricing an option on the EURUSD exchange rate are as follows: Spot price = 1.225 USD per Euro. Volatility = 7% per year, USD LIBOR = 1.8% per year, Euro LIBOR = 0.2% per year, time to option expiration = 6 months, exercise price = 1.23 USD.
a) Using the Garman-Kohlhagen formula and the normal distribution table given in the attached sheets, determine the price of a European call option with the characteristics given above.
b) Determine the delta of a long straddle (long call, long put, same exercise, same expiration) formed using the call given in part (a) and its corresponding put.

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a The price of th... View the full answer