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bpp revision kit q61 awan and co
in calculation of interest rate options why its exercised when the exercise price is lower than future price? when q64 keshi co the its exercised when exercise price is higher?a few of problems i did were like interest rate option is exercised when exercise price was greater than future price! i find that it logical as gain is when we exercise it at a higher price right?
Sorry – I don’t know how I missed the question.
In Awan they are call options, therefore they exercise if the exercise price is higher than the futures price.
In Keshi they are put options, therefore they exercise if the exercise price is lower than the futures price.
Which options they buy depends on whether they are borrowing or depositing.
You need to watch the free lectures on interest rate risk management – I go through the rules and explain the reasons in the lectures.
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