Suppose the terminal payoff of an exchange rate option is F T 1 {F T >X}. Let

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Suppose the terminal payoff of an exchange rate option is F_T¹{F_T >X}. Let V_d (F, t) denote the value of the option in domestic currency, show that

$V(F, t) = e(T) FEQ [1{F7>X}\Ft = F] = e FN (d) = erat et FN(d), where 8=ra - rf and d In 1/2 + (ra rf + //$

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Dec 02, 2023 03:57 AM

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Suppose the terminal payoff of an exchange rate option is F T 1 {F T >X}. Let

Question:

V₁(F, t) = e¯¹ƒ(T−¹) FEQƒ [1{F7>X}\Ft = F] = e¯¹ƒ¹ FN (d) = erat et FN(d), е where 8=ra -rf and d In / + (ra-rf OF √T + // ) t T T = T-t.

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Lets break down the notations and steps to help you understand the expression FT1 This represents th...View the full answer

Mathematical Models Of Financial Derivative

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