Create profit diagram for this portfolio at expiration

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Reference no: EM131854155

Consider a currency option for the British pound. The option expires in one year and has the following parameters. Contract amount of British pounds £10 million, strike price $1.200 per £1, annual standard deviation 14.0%, US risk-free rate .45%, UK risk-free rate .46%, spot exchange rate $1.280 per £1. (iv) Suppose you create a portfolio in which you go long one call option and short one put option. Create a profit diagram for this portfolio at expiration including the premiums paid. For this diagram you may use the UK risk free rate of .26%. Please explain step by step

Reference no: EM131854155

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