18. Let S = ($40), = 0.30, r = 0.08, T = 1, and =...

18. Let S = \($40\), σ = 0.30, r = 0.08, T = 1, and δ = 0. Also let Q = \($40\), σQ

= 0.30,

δQ

= 0, and ρ = 1. Consider an exchange call with S as the price of the underlying asset and Q as the price of the strike asset.

a. What is the price of an exchange call with S as the underlying asset and Q as the strike price?

b. Now suppose σQ

= 0.40. What is the price of the exchange call?

c. Explain your answers to

(a) and (b).