Question: Use the binomial option-pricing model developed in the chapter to value the call of problem 9. The volatility of the Swiss franc is 14.2 percent.

Use the binomial option-pricing model developed in the chapter to value the call of problem 9. The volatility of the Swiss franc is 14.2 percent.

Problem 9

Assume the spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market? Assume the annualized sixmonth Eurodollar rate is 3.5 percent.

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