Determine the price of the american call option

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An American Call option has a strike price of $30, and the underlying security is a currency. The volatility of the currency is s=25% per annum. The domestic risk-free rate is 3% per year and the foreign risk-free rate is 2% per year. The initial currency value today is $40. The tree should have 3 steps, with each step equal to 4 months (therefore the currency option expires in 12 months or one year) Calculate u and d in order to build the tree and compute the risk-neutral probabilities in order to determine the price of the American Call option today

Reference no: EM132909680

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