Options on e.g: shares can be subject to counterparty risk. Two parties closed a call option contract which has the following conditions: 1. The call contract has a maturity of (T=) one year 2. A call premiumC0 of 5,--EUR has to be paid in t=0, 3. The exercise proce of E= 100, --EUR has been agreed on. The probability of default of the counterparty has been estimated as 1%. Explain briefly the counterparty risk of this call contract. Please state which situation the counterparty risk can occur.
Options on e.g: shares can be subject to counterparty risk. Two parties closed a call option contract which has the following conditions: 1. The call contract has a maturity of (T=) one year 2. A call premiumC0 of 5,--EUR has to be paid in t=0, 3. The exercise proce of E= 100, --EUR has been agreed on. The probability of default of the counterparty has been estimated as 1%. Explain briefly the counterparty risk of this call contract. Please state which situation the counterparty risk can occur.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Options on e.g: shares can be subject to counterparty risk.
Two parties closed a call option contract which has the following conditions:
1. The call contract has a maturity of (T=) one year
2. A call premiumC0 of 5,--EUR has to be paid in t=0,
3. The exercise proce of E= 100, --EUR has been agreed on.
The probability of default of the counterparty has been estimated as 1%.
Explain briefly the counterparty risk of this call contract. Please state which situation the counterparty risk can occur.
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