Use explicit finite difference method to value the option

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Reference no: EM131239495

The current value of the British pound is $1.60 and the volatility of the pound/dollar exchange rate is 15% per annum. An American call option has an exercise price of $1.62 and a time to maturity of 1 year.

The risk-free rates of interest in the United States andthe United Kingdom are 6% per annum and 9% per annum, respectively.

Use the explicit finite difference method to value the option. Consider exchange rates at intervals of 0.20 between 0.80 and 2.40 and time intervals of 3 months.

Reference no: EM131239495

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