Question
ABC has developed the following probability distribution for the spot rate of the Indian rupee (INR) against the Australian dollar (A$) in six months to
ABC has developed the following probability distribution for the spot rate of the Indian rupee (INR) against the Australian dollar (A$) in six months to buy call options on INR1.61 million with an exercise price of A$0.3754 and a premium of A$0.0334.
A$0.2741 [40 per cent probability]
A$0.4250 [24 per cent probability]
A$0.5860 [(100-40-24) per cent probability]
What is the expected value of the cash to be paid in A$ for the call option hedge?
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Derivatives Markets
Authors: Robert L. McDonald
2nd Edition
032128030X, 978-0321280305
