Question
2. Suppose that the yen exchange rate is 10/. The continuously compounded interest is 3% in Korea and 1% in Japan. The volatility on both
2. Suppose that the yen exchange rate is 10/. The continuously compounded interest is 3% in Korea and 1% in Japan. The volatility on both currencies is low at 10%. Suppose there are =3 periods of length =13 in a year and =9.6/. (Use the binomial option pricing model.) a. What is the price of an 8-month European call option where Japanese yen is the underlying asset? b. What is the price of an 8-month European put option where Japanese yen is the underlying asset? c. What is the price of a 1-year American call option where Korean won is the underlying asset? d. What is the price of a 1-year American put option where Korean won is the underlying asset?
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