I am a beginner who is trying to solve some past exam questions. Can anyone take some time to explain these? 1. What happens to the price of a delta neutral straddle if the risk-free interest rate rises but the forward stays the same?2. The vol price for a 3 month 25 delta strangle is 0.55% above the ATMF. The vol price for a 3 month 25 delta call is 11.25% on the same asset. What is the vol price of the 3 month 25 delta put, if the risk reversal is trading at 1.5% for puts? What's the vol price of the ATMF?3. What's the price (in USD), forward & spot deltas and vega of the following option:12 month 1.1000 EUR call USD put knock-out 1.1000 in notional amount Euro 100 million, assuming12 month implied vol 10%spot trading at 1.2000both USD & EUR 12 month deposit rates are 2.00% per annumThanks

LOL... homework...Oh well... this shall be my last post, so might as well....1. If the forward stays the same, the price of the straddle will drop. You have a negative rho on the option, so if the forward stays the same, that means that delta has no impact.2. The put is trading at 12.75% vol. The difference between the 25 delta put and the 75 delta put is 1.5%. The 75 delta put is trading at 11.25% (the same as the 25 delta call).The 0.5 delta vol is then trading at (12.75%+11.25%) = 24%/2 = 12% - 0.55% = 11.45%3. 5 Million USD. Forward is 1.20 as yield differential is 0. Vega is 350,000 USD, delta is 0.55.Hope this helps.

Thanks FDAX. Err...before you actually retire, could you tell me how you arrived at the third answer.