The spot rate is currently TL32/$. Over the next 3-month it is expected to go up by 10% or down by 8%. The risk-free TL interest rate is 40% per annum quarterly compounding. 3-month futures exchange rate is TL34.68/$. With respect to the binomial pricing approach; a. What is the value of a 3-month European call option with a strike price of TL33 per $? b. What is the value of a 3-month European put option with a strike price of TL33 per $?
Added by Andrew S.
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- Up factor = 1 + 10% = 1.10 - Down factor = 1 - 8% = 0.92 Show more…
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