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Basic Question 1 of 12

A forward contract is priced at $129. A European option on the forward contract has an exercise price of $135 and expires in 49 days. The continuously compounded risk-free rate is 3.75% and volatility is 0.25. Calculate the prices of a call option and a put option on the forward contract.

User Contributed Comments 4

User Comment
danlan2 129 is the future price.
NIKKIZ It seems to me that there's a bit missing from the calculation of N(d1). I think it should be:

{ln(129/135)+[0.0375+(0.25^2/2)]0.13425}/[0.25 X 0.13425^0.5]. The answer would be -0.39553.

Am I missing something?
Greatrussian NIKKIZ: The risk free rate 0.0375 should not be used in the calculation of d1.
maxsouto NIKKIZ: The value of an option can't be less than 0
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Edward Liu

Edward Liu

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® 2024 Level II Curriculum, Volume 5, Module 34.