Andy2022-05-12 21:55:51
AndyHilo Jenny, would like to seek you advice on below question of practice exam. A derivative trading firm buys a European-style call option on stock JKJ with a time to expiration of 9 months, a strike price of EUR 45, an underlying asset price of EUR 67, and implied annual volatility of 27%. The annual risk-free interest rate is 2.5%. What is the trading firm’s counterparty credit exposure from this transaction? If there is any additional info required for the calculation, please make it up. Many thanks.
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Michael2022-05-13 22:32:10
MichaelThanks for for question, the solution is as below.
First, calculate the value of the call option using BSM formula. V(call)=S*N(d1)-Ke^rt*N(d2)
Second, V(call) is the exposure that we want.
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