Question
Assume the spot USD/JPY exchange rate is 96 (1 USD = 96 JPY). The continuously compounded risk-free interest rate is 1% per annum in the
Assume the spot USD/JPY exchange rate is 96 (1 USD = 96 JPY). The continuously compounded risk-free interest rate is 1% per annum in the US and 3% per annum in Japan. Assume that the volatility of the USD/JPY exchange rate is 25% per annum.
a) Find the current price of JPY value of a one-year European call option on one USD with an exercise price of JPY 90? Show your calculations.
b) Calculate the USD value of a one-year European put option on one JPY with an exercise price of USD 0.011. Show your calculations. (Hint: there is no need to use the BlackScholes)
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Bond Markets Analysis and Strategies
Authors: Frank J.Fabozzi
9th edition
133796779, 978-0133796773
