Suppose that the current eur/gbp spot rate is 0.6, the effective risk-free rates of return are r
Question:
(a) What is the risk-adjusted probability of a spot rate increase? Decrease?
(b) What is the risk-adjusted expected value of the European call with a strike price of 0.59?
(c) What is the time-0 value of the call?
(d) What is the factor u(d) by which the spot rate increases? Decreases?
(e) What is the option's exposure?
(f) Would the option's value change if it were American?
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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Related Book For
International Finance Putting Theory Into Practice
ISBN: 978-0691136677
1st edition
Authors: Piet Sercu
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