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Problem 2. The Cox Ross and Rubinstein Tree Model (10 points) An Exchange rate has a volatility of 12%. The domestic and foreign risk-free interest

Problem 2. The Cox Ross and Rubinstein Tree Model (10 points)

An Exchange rate has a volatility of 12%. The domestic and foreign risk-free interest rates are 6% and 4%, respectively. The time step on a binomial tree (Dt) is three months.

What are the p, u and d parameters for a Cox, Ross, and Rubinstein model?

p = u =

d =

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