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Hi
I have a very general query on option premiums and gain on options.
The premiums noted next to the option exercise price are quoted at several decimal places however when I am reviewing the answers, some are several more decimal places but some aren’t. This is also the case when a gain is calculated on the basis between the option on the future price and the exercise price. Some gain basis are to several decimal places but some aren’t.
Can you please tell me how to correctly calculate the decimal places (if any) they should be to?
Thanks much appreciated
I am puzzled by your question because I can’t understand what you mean by answers having several more decimal places for the option premiums than the question – they can’t have just invented extra figures.
Also the decimal places for the futures prices and the exercise price will be given in the question.I think I might be misunderstanding you – it is better if you refer me to a past exam question where you think this has happened.
(If you mean how many decimal places to show the final answer (i.e. the total premium payable, or the total gain, then showing the final answer to the nearest $ is quite enough)
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