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Dear john sir,
If we neither have future spot price nor do we have futures closing price and no plausible way to calculate either then do we always assume that options contract will be exercised going ahead in the future (when payment/receipt would be due) or in other words the futures price would have moved against us?
No. It is only on the date of the transaction that the option might or might not be exercised.
If we do not know (and cannot calculate) what the futures price will be on the date of the transaction (which would be unusual in the exam), then you would need to write down under what circumstances (i.e. for what futures prices) they would or would not exercise.
for example in the kenduri co(june 13) part b) the calculations that have been performed under currency options seem to suggest that they have exercised the option post 3 months. But there is no mention of the spot price in 3months time, so then on what premise have they exercised the option?
Do you think they assumed the spot to remain constant?Or perhaps compared it with 3 month forward? Because they havent mentioned any footnotes or anything of sort.
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