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The exchange rate is $1.20/ Exchange rate volatility is 15%. The dollar interest rate is 5%. The euro interest rate is 9%. Both are
The exchange rate is $1.20/ Exchange rate volatility is 15%. The dollar interest rate is 5%. The euro interest rate is 9%. Both are continuously compounded rates. The price evolution of the euro follows the standard binomial pricing model. A 9-month European call option on the euro has a strike price of $1.10 and is valued using a 3-period binomial model. Calculate the price of the European call option.
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