A financial institution has just sold 1,000,000 6-month European call options on the Japanese yen. Suppose that the spot exchange rate is 0.80 cents per yen, the exercise price is 0.81 cents per yen, the risk-free rate on the US dollar is 2.5% per annum, the risk-free rate in Japan is 0.5% per annum, and the volatility of the yen is 10% per annum. Calculate the delta (D), gamma (G), vega (n), theta (Q), and rho (r) of the financial institutions' position. Interpret with an explanatory sentence the meaning of each of the calculations.
A financial institution has just sold 1,000,000 6-month European call options on the Japanese yen. Suppose that the spot exchange rate is 0.80 cents per yen, the exercise price is 0.81 cents per yen, the risk-free rate on the US dollar is 2.5% per annum, the risk-free rate in Japan is 0.5% per annum, and the volatility of the yen is 10% per annum. Calculate the delta (D), gamma (G), vega (n), theta (Q), and rho (r) of the financial institutions' position. Interpret with an explanatory sentence the meaning of each of the calculations.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A financial institution has just sold 1,000,000 6-month European call options on the Japanese yen. Suppose that the spot exchange rate is 0.80 cents per yen, the exercise price is 0.81 cents per yen, the risk-free rate on the US dollar is 2.5% per annum, the risk-free rate in Japan is 0.5% per annum, and the volatility of the yen is 10% per annum. Calculate the delta (D), gamma (G), vega (n), theta (Q), and rho (r) of the financial institutions' position. Interpret with an explanatory sentence the meaning of each of the calculations.
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