- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 32. Valuation of Contingent Claims
- Subject 5. Black Option Valuation Model
CFA Practice Question
The Black model uses the ______ as the underlying rate to value an interest rate option.
B. spot LIBOR
C. forward rate
A. FRA rate
B. spot LIBOR
C. forward rate
Correct Answer: A
The FRA rate is observed today. The σ is the annualized standard deviation of the continuously compounded percentage change in the underlying FRA rate.
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