During the Covid-19 pandemic, the spot USD-EUR exchange rate was $0.8301/euro. Consider a 3-month (=0.25 year) At-the-money (ATM) American style call option on the EUR at that time. Suppose that the volatility of the exchange rate is 5.75%, the 3-month interest rate on the USD is 0.188%, and the 3-month interest rate on the EUR is -0.538%, both in continuously-compounded terms. Calculate the price of this American style call option.

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To calculate the price of the Americanstyle call option we can use the BlackScholesMerton BSM model ... View the full answer