to calculate premium on option, for interest rate option, we have to multiply
=no of contract x premium x size of contract
Is this the answer for one year premium? do we have to multiply this answer by the (length of contract/12)?
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premium on option
12y ago#1Although the premium is expressed as an annual rate, it is always calculated as though it was for three months. So you take the number of contracts x contract size x premium x 1/400.
However, remember that when deciding on the number of contracts you have to take into account the length of the loan.
(If you are confused, then do watch my free lectures on this)
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