Question

Calculate the price of a 1-year European option to give up 100 ounces of silver in exchange for 1 ounce of gold. The current prices of gold and silver are $$\$ 1,520$$ and $$\$ 16$$, respectively; the risk-free interest rate is $10 \%$ per annum; the volatility of each commodity price is $20 \%$; and the correlation between the two prices is 0.7 . Ignore storage costs.

   Calculate the price of a 1-year European option to give up 100 ounces of silver in exchange for 1 ounce of gold. The current prices of gold and silver are $$\$ 1,520$$ and $$\$ 16$$, respectively; the risk-free interest rate is $10 \%$ per annum; the volatility of each commodity price is $20 \%$; and the correlation between the two prices is 0.7 . Ignore storage costs.
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Options, Futures, and Other Derivatives
Options, Futures, and Other Derivatives
John C. Hull 10th Edition
Chapter 26, Problem 12 ↓

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The risk-free interest rate is given as 10% per annum. To annualize it, we divide it by 100 to get 0.1.  Show more…

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Calculate the price of a 1-year European option to give up 100 ounces of silver in exchange for 1 ounce of gold. The current prices of gold and silver are $$\$ 1,520$$ and $$\$ 16$$, respectively; the risk-free interest rate is $10 \%$ per annum; the volatility of each commodity price is $20 \%$; and the correlation between the two prices is 0.7 . Ignore storage costs.
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