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1. Option pricing, binomial model The NOK/GBP exchange rate is 11.85, the p.a. six-month interest rate in Norway is 0.50% and the p.a. six-month interest

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1. Option pricing, binomial model The NOK/GBP exchange rate is 11.85, the p.a. six-month interest rate in Norway is 0.50% and the p.a. six-month interest rate in Great Britain is 0.20%. During each of the next two six-months periods the exchange rate may either increase or decrease by 0.25 NOK/GBP. Use the binomial model to estimate the price of a one-year European at-the-money call option on GBP

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