A put costing 308,700 dollars against a zero-premium participating forward, compared at seven settlement rates on one forecast, is the substance of the GF584 Unit 5 option strategy comparison. Searches like "gf 584 unit 5 assignment example", "gf584 unit 5 sample" and "gf584 unit 5 example" land here.
What a finished GF584 Unit 5 option strategy comparison looks like
Five pages centered on a payoff table and a short pricing appendix. Inputs are stated once: spot 0.6620, a one-year forward of 0.6649, volatility of 10.5 percent, and a dollar rate of 4.05 percent against 3.60 in Australia. A one-year Australian dollar put struck at 0.6500 costs 0.01992 dollars per Australian dollar under Garman-Kohlhagen, 308,700 in total, and gives a net floor of 0.6293 after financing the premium. The participating forward buys the same kind of put at 0.6459 and sells a call at that strike on half the amount, so no premium changes hands. The table reports dollar proceeds at settlement rates from 0.58 to 0.76: at 0.61, 9.754 million under the put and 10.011 million under the participating forward; at 0.73, 10.994 against 10.663. The lines cross at 0.6873.
How a GF584 Unit 5 example is structured
The comparison opens with the exposure and why it calls for options at all: fourth-quarter sales are forecast, not ordered, so an obligation sized to the full amount could outrun the business. Pricing follows, the Garman-Kohlhagen inputs listed and each premium computed, with the participating forward's strike found by solving for the level at which the put's premium equals half a call's. The payoff table is the center, seven rates by three columns, unhedged proceeds included so each strategy can be read against doing nothing. Two paragraphs then describe each position in terms of what it buys and what it surrenders. A crossover section explains why the forward-style structure wins below 0.6873 and the put above it. The recommendation turns on volume rather than rate: the sold call binds on 7.75 million Australian dollars whether or not the orders arrive.
Why options for a forecast
Sales not yet ordered could fall short, and an option lapses harmlessly if they do, which a forward covering every forecast dollar cannot manage.
Pricing with the foreign rate included
Garman-Kohlhagen, with Australian and dollar rates of 3.60 and 4.05 percent and 10.5 percent volatility, prices the 0.6500 put at 0.01992 per Australian dollar.
Solving for a zero-premium strike
Setting the put's premium equal to half the call's premium lands the participating forward at 0.6459, the strike where the two legs cancel.
Seven rates, three columns
Unhedged, put and participating forward proceeds sit side by side from 0.58 to 0.76, so each position can be judged against doing nothing.
Where the lines cross
Below 0.6873 the participating forward delivers more; above it the put does, because the sold call caps the upside on half the amount.
Volume decides
If harvest-season orders fall below 7.75 million Australian dollars, the sold call would still require delivery, so the recommendation takes the put and its 308,700 premium.
Where marks go in GF584 Unit 5
The table carries most of the weight in a GF584 option comparison, so a paper naming two strategies and describing them in prose, with no proceeds at any settlement rate, gives the grader little to credit. Premiums that appear without a pricing model, or a zero-cost structure called free without stating what was sold to fund it, draw direct comment. The sold call inside a participating forward is the point most often missed: it is an obligation, and on a forecast exposure it can exceed the currency actually received. Floors quoted before premium financing overstate the put's protection. Using a stock-option formula without the foreign interest rate misprices both positions. Recommendations argued only on expected rates, never on the certainty of the underlying sales, miss what makes this exposure different from the committed orders.
Get a GF584 Unit 5 example written to your instructions
Exposure amount, horizon, the rates and volatility your Unit 5 materials give, and the rubric: with those, both positions are priced, proceeds are tabulated across settlement rates and the recommendation rests on the certainty of the underlying amount rather than on a view of rates. It takes 24-48h, and a first comparison is free.
GF584 Unit 5 questions, answered
What is a participating forward?
A combination that buys a put on the full amount and sells a call on part of it at the same strike, chosen so the premiums cancel. Below the strike the holder is protected in full; above it, the holder keeps the gain on the unsold portion only. It suits exposures that are certain, since the sold portion must be delivered if the call is exercised.
Which option pricing model should the comparison use?
For currency options, Garman-Kohlhagen, the version of Black-Scholes that treats the foreign interest rate as a continuous yield. Many sections accept premiums supplied by the case instead. Either way, show the inputs, and if the course uses a binomial model, a few steps are enough to show where the premium comes from.
Should the comparison always recommend the cheaper structure?
No. Cost is one criterion and fit to the exposure is another. A zero-premium structure that creates an obligation larger than the likely underlying amount can be more expensive in a bad outcome than a put that costs money upfront. Weigh premium, protection, upside and the certainty of the amount being hedged, and say which of them mattered most.