Question
A nine month call option on Canadian dollars has a strike price of $.75.The current exchange rate $0.75, the U.S. risk free rate is 7%
A nine month call option on Canadian dollars has a strike price of $.75.The current exchange rate $0.75, the U.S. risk free rate is 7% per year, the Canadian risk free rate is 9% and the volatility is 6% per year.
a. Suppose the call is European.What is the Black-Scholes price of the call?
b. Divide the time to expiration into four binomial periods (please show the binomial trees):
i. What is the binomial price assuming the call is European?
ii What is the price assuming the call is American?
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Entrepreneurial Finance
Authors: Philip J. Adelman; Alan M. Marks
6th edition
9780133099096, 133140512, 133099091, 978-0133140514
