The French futures market, MATIF, trades Euribor contracts. The Euribor is the three-month interbank interest rate...

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The French futures market, MATIF, trades Euribor contracts. The Euribor is the three-month interbank interest rate on euros. The contract size is €1 million, and the margin is €3,000. On January 10, March futures trade at 90.74%. Options on the Euribor futures contract are also listed. The premiums (in %) on march options are as follows: Strike Price Call Put 90.40 0.30 0.06 90.80 0.17 0.18 91.00 0.09 0.34 A few days later (January 14), the futures price moves to 89.50. 1. What is the gain or loss, in euros, for someone who sold a futures contract on January 10? 2. What is the return, as a percentage of the initial investment (margin)? 3. Are all option premiums quoted on January 10 reasonable? 4. You know that you will have to borrow €10 million in March and fear a rise in interest rates. What are the maximum borrowing rates that you can insure using the various options? 5. To cap your borrowing rate, you decide to use options with a strike price of 90.80. How many calls (or puts) should you buy (or sell)? 6. On January 14, the premium on the call March 90.80 moves to 0.02, and the premium on the put March 90.80 moves to 1.33. What is the € profit (or loss) on your option position? 7. What is the rate of return on your option position? The French futures market, MATIF, trades Euribor contracts. The Euribor is the three-month interbank interest rate on euros. The contract size is €1 million, and the margin is €3,000. On January 10, March futures trade at 90.74%. Options on the Euribor futures contract are also listed. The premiums (in %) on march options are as follows: Strike Price Call Put 90.40 0.30 0.06 90.80 0.17 0.18 91.00 0.09 0.34 A few days later (January 14), the futures price moves to 89.50. 1. What is the gain or loss, in euros, for someone who sold a futures contract on January 10? 2. What is the return, as a percentage of the initial investment (margin)? 3. Are all option premiums quoted on January 10 reasonable? 4. You know that you will have to borrow €10 million in March and fear a rise in interest rates. What are the maximum borrowing rates that you can insure using the various options? 5. To cap your borrowing rate, you decide to use options with a strike price of 90.80. How many calls (or puts) should you buy (or sell)? 6. On January 14, the premium on the call March 90.80 moves to 0.02, and the premium on the put March 90.80 moves to 1.33. What is the € profit (or loss) on your option position? 7. What is the rate of return on your option position?

Answer rating: 100% (QA)

1 To calculate the gain or loss we need to determine the difference between the initial price and the new price and then multiply it by the contract s... View the full answer