Why should I choose AnalystNotes?

Simply put: AnalystNotes offers the best value and the best product available to help you pass your exams.

Find out more

Basic Question 2 of 12

An interest rate put option based on a 90-day underlying rate has an exercise rate of 5.5% and expires in 150 days. The forward rate is 5.25% and the volatility is 0.08. The continuously compounded risk-free rate is 4%. Calculate the price of the interest rate put option using the Black model. The notional principal is $10 million.
Check Answer Previous Q Next Q Print

User Contributed Comments 4

User Comment
danlan2 Do not understand the two adjustments.
Rotigga Note the adjustment for step #2 is 90/360, not 90/365.
ptyson the last part of the notes in this section explains it best.
Nando1 Don't worry about it. We're not asked to calculate the model for the exam.
You need to log in first to add your comment.
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach

Andrea Schildbach

Learning Outcome Statements

describe how the Black model is used to value European options on futures;

describe how the Black model is used to value European interest rate options and European swaptions;

CFA® 2025 Level II Curriculum, Volume 5, Module 32.