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The current exchange rate between AUD and USD is $0.78 per AUD. The risk free interest rate is 1% for USD and 3% for AUD
The current exchange rate between AUD and USD is $0.78 per AUD. The risk free interest rate is 1% for USD and 3% for AUD (per year with continuous compounding). In a 6-month period, the exchange rate either goes up by 15.2%, or down by 13.2%. Consider a 1-year call option with strike price $0.75. (1). (1.5 points) What's the price of the call if it's of European style? (2). (1.5 points) What's the price of the call if it's of American style? (3). (1 point) For the American call, when should it be early exercised? The current exchange rate between AUD and USD is $0.78 per AUD. The risk free interest rate is 1% for USD and 3% for AUD (per year with continuous compounding). In a 6-month period, the exchange rate either goes up by 15.2%, or down by 13.2%. Consider a 1-year call option with strike price $0.75. (1). (1.5 points) What's the price of the call if it's of European style? (2). (1.5 points) What's the price of the call if it's of American style? (3). (1 point) For the American call, when should it be early exercised
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