IF Lecture 7 Currency Options.pptx

International FinanceCurrency Options;;3;4;5;6;7;8;18/11/2013;10;11;12;13;14;15;; When do options result in a profit?;18;19;20;21;22;23;24;25;26;Epilogue;;Option pricing;Black–Scholes Formula;Example of application;Step 2 Find the values for N(d1) and N(d2) N(d1) is the probability that A normally distributed variable Will be less than d1 standard deviations above the mean This may be found either Using the excel function NORMSDIST Or by looking up the value in statistical tables Entering the value 0.2120 into excel gives a value of 0.5840 (Pr) Same process for N(d2) To produce a value of 0.4698;Step 3 Enter the numbers into the Black-Scholes formula To give a value of ￡ 6.78 Conclude To buy a call option which gives the right to purchase the share In six months time At a strike price of ￡55 A fair / model price would be ￡6.78