Dear All,

I was hoping you could shed some light for me on how the "premium" is calculated on a currency option....

for example, i have been quoted by XYZ Bank

Currency Options

XYZ Buys USD 200,000

XYZ Sells GBP

Expiry Date: 28 Sep 2009

Value Date: 30 Sep 2009

Indicative Prices - To protect a rate of £/$ 1.40 (Strike Rate) the cost would be £8,715

So this is based on a "vanilla" option, which i assume is a call option on USDGBP - the only pricing i have seen available online for such cash settled OTC Options is at http://www.nasdaq.com/asp/currency-options.asp

on this page, as at "now" they are quoting a price of 7.60 for sept 09 USDGBP with strike of 1.400

How on earth do i get from "7.6" to an "option premium" price, i dont mind if its rough&ready just so that I get an indication of how they have arrived at the figure.

All your help is very much appreciated.

Vikas Shah

I was hoping you could shed some light for me on how the "premium" is calculated on a currency option....

for example, i have been quoted by XYZ Bank

Currency Options

XYZ Buys USD 200,000

XYZ Sells GBP

Expiry Date: 28 Sep 2009

Value Date: 30 Sep 2009

Indicative Prices - To protect a rate of £/$ 1.40 (Strike Rate) the cost would be £8,715

So this is based on a "vanilla" option, which i assume is a call option on USDGBP - the only pricing i have seen available online for such cash settled OTC Options is at http://www.nasdaq.com/asp/currency-options.asp

on this page, as at "now" they are quoting a price of 7.60 for sept 09 USDGBP with strike of 1.400

How on earth do i get from "7.6" to an "option premium" price, i dont mind if its rough&ready just so that I get an indication of how they have arrived at the figure.

All your help is very much appreciated.

Vikas Shah