Assume that the price of a forward contract is 127.87. The European options on the forward contract has an exercise price $150, expiring in 60 days. 3.75% is the continuously compounded risk-free rate, and volatility is 0.33. A. Using the Black model, calculate the price of a call option on a forward contract. B. Calculate the underlying asset's price. Using the Black-Scholes-Merton model, determine the price of a call option on the underlying asset. Should this pricing be any different from the one calculated in letter A? Explain your answer. C. Using the Black model, calculate the price of a put option on a forward contract. D. Using the Black-Scholes-Merton model, compute the price of a put option on the underlying asset. Should this pricing be any different from the one calculated in letter C? Explain your answer.
Assume that the price of a forward contract is 127.87. The European options on
the forward contract has an exercise price $150, expiring in 60 days. 3.75% is
the continuously compounded risk-free rate, and volatility is 0.33.
A. Using the Black model, calculate the price of a call option on a forward
contract.
B. Calculate the underlying asset's price. Using the Black-Scholes-Merton
model, determine the price of a call option on the underlying asset. Should
this pricing be any different from the one calculated in letter A? Explain your
answer.
C. Using the Black model, calculate the price of a put option on a forward
contract.
D. Using the Black-Scholes-Merton model, compute the price of a put option on
the underlying asset. Should this pricing be any different from the one
calculated in letter C? Explain your answer.
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