- Upper Limit on Range Forward
(20%) Employing the spot rate version of the Black-Scholes foreign exchange valuation model, determine the appropriate value of the upper limit of the range forward on the NZD recommended by Banco Manquehue. This requires a trial and error procedure. Confine your answer to three significant digits.
Recall that to apply the Black-Scholes model in a situation where bid-ask and deposit/borrowing rate spreads exist, the midpoints of said spreads must be used. As well, note that a range forward has a value of zero at inception and that a range forward may be viewed as an option collar.
When