Question
a.What is the estimated value of this put option by using the binomial model? (5 marks) b.Calculate the estimated value of this put option for
a.What is the estimated value of this put option by using the binomial model?
(5 marks)
b.Calculate the estimated value of this put option for U.S. T-Bill rates of 0%, 1%, 2%, 4%, 5%, and 6%. Plot these values in a graph (by hand or using Excel), with put option values on the y-axis and U.S. T-bill rates on the x-axis. What can we conclude about the relationship between foreign interest rates and foreign currency put option values?(2.5 marks)
c.Calculate the estimated value of this put option for Canadian T-Bill rates of 0%, 1%, 2%, 4%, 5%, and 6%. Plot these values in a graph (by hand or using Excel), with put option values on the y-axis and Canadian T-bill rates on the x-axis. What can we conclude about the relationship between domestic interest rates and foreign currency put option values?(2.5 marks
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