Question
Calculate the price of a three-month European call option on the spot value of silver. The three-month futures price is $$\$ 12$$, the strike price is $$\$ 13$$, the risk-free rate is $4 \%$ and the volatility of the price of silver is $25 \%$.
Step 1
Since the option has a three-month expiration, we need to convert it to years. There are 12 months in a year, so three months is $\frac{3}{12} = 0.25$ years. Show more…
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