Forward dating stock options
Assume that on January 1, 2014 the forward price is at 7, the annualized continuously compounded risk-free rate is 3% per annum and volatility is 28% per annum. Define the Consider a call European option on the Crude Oil Brent futures.The option expires on December 1, 2014 with an exercise price of 0.A financial derivative is a contract between two or more counterparties that derives its value from one or more underlying assets such as stocks, bonds, currencies, market indices and commodities.Futures, forwards and options are three examples of financial derivatives.Standardized options trade on exchanges that have strict specifications, much like those found on futures exchanges.In fact, you can trade options on futures in which the underlying asset is a futures contract.
This example shows how to compute option prices on forwards using the Black pricing model.
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The main differences between futures and option contracts include: Eric Bank is a senior business, finance and real estate writer, freelancing since 2002.
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