U.S. Dollar-Euro. The table, = indicates that a 1-year call option on euros at a strike...

 

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U.S. Dollar-Euro. The table, = indicates that a 1-year call option on euros at a strike rate of $1.2505 €1.00 will cost the buyer $0.0464 per €, or 3.71%. But that assumed a volatility of 10.500% when the spot rate was $1.2493 = €1.00. What would that same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00? The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00 would be $ ☐ /€. (Round to four decimal places.) Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) Variable Value A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Spot rate (domestic/foreign) Forward rate (domestic/foreign) SO $ 1.2493 SO € 0.8004 FO $ 1.2402 FO € 0.8063 Strike rate (domestic/foreign) X $ 1.2505 X € 0.7997 Domestic interest rate (% p.a.) rd 1.453 % rd 2.186 % Foreign interest rate (% p.a.) rf 2.186 % rf 1.453 % Time (years, 365 days) T 1.000 T 1.000 Days equivalent 365.00 365.00 Volatility (% p.a.) S 10.500 % S 10.500 % U.S. Dollar-Euro. The table, = indicates that a 1-year call option on euros at a strike rate of $1.2505 €1.00 will cost the buyer $0.0464 per €, or 3.71%. But that assumed a volatility of 10.500% when the spot rate was $1.2493 = €1.00. What would that same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00? The same call option cost if the volatility was reduced to 10.500% when the spot rate fell to $1.2479 = €1.00 would be $ ☐ /€. (Round to four decimal places.) Pricing Currency Options on the Euro A U.S.-based firm wishing to buy or sell euros (the foreign currency) Variable Value A European firm wishing to buy or sell dollars (the foreign currency) Variable Value Spot rate (domestic/foreign) Forward rate (domestic/foreign) SO $ 1.2493 SO € 0.8004 FO $ 1.2402 FO € 0.8063 Strike rate (domestic/foreign) X $ 1.2505 X € 0.7997 Domestic interest rate (% p.a.) rd 1.453 % rd 2.186 % Foreign interest rate (% p.a.) rf 2.186 % rf 1.453 % Time (years, 365 days) T 1.000 T 1.000 Days equivalent 365.00 365.00 Volatility (% p.a.) S 10.500 % S 10.500 %

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To calculate the cost of the same call option when the volatility is reduced to 10500 and the spot r... View the full answer