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However, there are other types of financial investments that provide their own unique risk and reward profiles.
Futures, forwards and options are three types of financial contracts that provide access to a whole world of assets and risk/reward tradeoffs.
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Investors are typically acquainted with the popular types of investments like stocks, bonds and mutual funds.
Consider two European options, a call and put on the Brent Blend forward contract that expires on January 1, 2015.
The options expire on October 1, 2014 with an exercise price of 0 and respectively.
Options and futures are traded as standardized contracts on exchanges, whereas forward contracts are negotiated agreements between counterparties.
He has written thousands of articles about business, finance, insurance, real estate, investing, annuities, taxes, credit repair, accounting and student loans.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.For example, if you buy a stock futures contract, you must take delivery of the underlying stock unless you sell the contract before expiration.A financial futures contract does not involve delivery of assets but otherwise has the same potential for gain or loss as do physically settled contracts.
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Assume that on May 1, 2008 the contract is trading at $20, and has a volatility of 35% per annum. Using this data, calculate the price of the call futures options using the Black model.