Domestic risk-free rate and foreign risk-free rate

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Reference no: EM131559247

A currency has a current worth of 1.1131 and its volatility is 15%. Assume that the domestic risk-free rate is 3% and the foreign risk-free rate is 4%.

(a) Apply the two-step binomial option pricing model to price an American 3-month call option whose strike price is 1.0500.

(b) Apply the Black-Scholes model to price a European 3-month put option with a strike price of 1.0500.

Reference no: EM131559247

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