Posted by **Justin** on Monday, April 25, 2011 at 3:02pm.

Using Monte Carlo simulation, calculate the price of a 1-year European option to give up 100 ounces of silver in exchange for 1 ounce of gold. The current prices of gold and silver are $380 and $4, respectively; the risk-free interest rate is 10% per annum; the volatility of each commodity price is 20%; and the correlation between the two prices is 0.70. Ignore storage costs.

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