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A three month European call option with strike price $NZ1.03 is traded on Australian dollars. The Australian dollar has volatility 16%, and is currently at
A three month European call option with strike price $NZ1.03 is traded on Australian dollars. The Australian dollar has volatility 16%, and is currently at $NZ1.02. New Zealand interest rates are 6.7%, while Australian interest rates are 6.4% (both with continuous compounding).
(a) What is the delta of the option?
(b) What is the gamma of the option?
(c) Use your calculations from 5a and 5b to estimate what the delta of the option would be if the exchange rate fell to 1.01.
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