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Consider a European call to buy F=$20,000 of foreign currency with strike rate k=1.1, where the current exchange rate is $1 Foreign : $1.22 Domestic.
Consider a European call to buy F=$20,000 of foreign currency with strike rate k=1.1, where the current exchange rate is $1 Foreign : $1.22 Domestic.
Assume in CRR notation: u=1.25, d=1/u, Rd=1.02, Rf=1.05, and N=4 steps.
(a) The value of the risk neutral probability pi
(b) The value of C(4,3)?
(c) The premium is ?
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