A bank’s position in OTC options on the dollar-euro exchange rate with a current Delta of -400 and a current Vega of 771. The exchange rate (dollars per euro) is 1.16 and the volatility of the exchange rate is 23.8% per annum. If the volatility of the exchange rate was to suddenly change to 27.4% per annum, what would be your best estimate of the change in the value of the bank’s position in OTC options? Your answer should be a number without any currency sign and if the change is a decrease then there should be negative sign at the front (i.e., if the value goes up by $100 you should write 100, but if it goes down by $100 you should write -100).
A bank’s position in OTC options on the dollar-euro exchange rate with a current Delta of -400 and a current Vega of 771. The exchange rate (dollars per euro) is 1.16 and the volatility of the exchange rate is 23.8% per annum. If the volatility of the exchange rate was to suddenly change to 27.4% per annum, what would be your best estimate of the change in the value of the bank’s position in OTC options? Your answer should be a number without any currency sign and if the change is a decrease then there should be negative sign at the front (i.e., if the value goes up by $100 you should write 100, but if it goes down by $100 you should write -100).
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter27: Multinational Financial Management
Section: Chapter Questions
Problem 7MC
Related questions
Question
A bank’s position in OTC options on the dollar-euro exchange rate with a current Delta of -400 and a current Vega of 771. The exchange rate (dollars per euro) is 1.16 and the volatility of the exchange rate is 23.8% per annum. If the volatility of the exchange rate was to suddenly change to 27.4% per annum, what would be your best estimate of the change in the value of the bank’s position in OTC options? Your answer should be a number without any currency sign and if the change is a decrease then there should be negative sign at the front (i.e., if the value goes up by $100 you should write 100, but if it goes down by $100 you should write -100).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning