European call option on the futures

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Reference no: EM132064396

A futures price is currently 120. It is known that at the end of three months the price will be either 100 or 140. What is the value of a three-month European call option on the futures with a strike price of 122 if the risk-free interest rate is 5% per annum (continuously compounded)? How would you hedge this option if you sold it?

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Reference no: EM132064396

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