Question
1) Find the price of a 2-year European call option for 1 with strike price of 1.9$/, if current spot exchange rate is 1.8$/, each
1) Find the price of a 2-year European call option for 1 with strike price of 1.9$/, if current spot exchange rate is 1.8$/, each year exchange rate can either go up or down by $0.15, U.S. interest rate is 3% and U.K interest rate is 5%.
Answer:$0.0287
----
Top tree gives 0.2/0.3*(1.95/1.05-1.8/1.03)=$0.0730
Bottom tree gives zero
Main tree gives 0.0730/0.3*(1.8/1.05-1.65/1.03)=$0.0273
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Tools for business decision making
Authors: kimmel, weygandt, kieso
4th Edition
978-0470117262, 9780470534786, 470117265, 470534788, 978-0470095461
