Question

In this problem we use the lognormal approximation (see equation (11.14)) to draw one-step binomial trees from the perspective of a yen-based investor. Use the information in Table 23.4.
a. Construct a one-step tree for the Nikkei index.
b. Construct a one-step tree for the exchange rate (yen/dollars).
c. Use the trees to price Nikkei and dollar forwards. Compare your answers with those in Example 23.7.


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  • CreatedAugust 12, 2015
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