A currency option series on Australian dollars (AUD) denominated in U.S. dollars. Suppose that a two-year call
Question:
A currency option series on Australian dollars (AUD) denominated in U.S. dollars. Suppose that a two-year call option is available on AUD with an exercise price equal USD0.65. The U.S. interest rate is 0.04 and the Australian rate is 0.06. The current exchange rate is USD0.7/AUD and the standard deviation associated with the exchange rate is 0.3. What is the value of this currency call? What is the value of a put with the same exercise terms?
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To answer this question we first calculate d 07 065 d 006 004 032 Next we calculate d dd0...View the full answer
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