how the solution in details Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/u = 0.625). The current interest rates are i€ = 3% and are i£ = 4
how the solution in details Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/u = 0.625). The current interest rates are i€ = 3% and are i£ = 4
Chapter11: Managing Transaction Exposure
Section: Chapter Questions
Problem 56QA
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Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/u = 0.625). The current interest rates are i€ = 3% and are i£ = 4%. Choose the answer closest to yours.
the answer is
A) €3,275
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