Franco replies: “The Black model can be used to value options on the Eurodollar future. In this model, futures options have two components: a futures component and a bond component. When hedging against rising interest rates, according to the Black model, the Eurodollar futures option used can be viewed as the futures component minus the bond component.”
Q. Franco’s description of the Black model’s approach to valuation of Eurodollar futures options used for hedging is:
- correct.
- incorrect, because he is describing a call option.
- incorrect, because he is describing a put option.
Solution
B is correct. Franco is incorrect because he describes a long call option, which according to the Black model can be viewed as the futures component minus the bond component. Long put options hedge against rising interest rates. The Black model evaluates put options as the bond component minus the futures component.
A is incorrect. The statement is incorrect.
C is incorrect. The Black model evaluates put options as the bond component minus the futures component.
答案并未说明到底option on future 应该如何描述？
