Problem 7.12

Assume the spot Swiss franc is $0.7040 and the six-month forward rate is $0.7030. What is the Value of a six-month call option with a strike price of $0.6840 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3.50 percent. Assume the annualized volatility of the Swiss franc is 14.20 percent. Use the binomial option-pricing model to value the call option. (Do not round intermediate calculations. Round your answer to 2 decimal places. Enter your answer in cents per Swiss Franc.)

Value of call option: X cents per SF