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What is the value of the option

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You are in New Zealand. You are planning to price an American put option on US dollars, maturing in 21 months. The current exchange rate is one US dollar per 1.46 NZ dollars, while the option's strike will be 1.53. You plan to use a 2 step tree. The New Zealand interest rate is 8.30%, while the US interest rate is 1.60% (both with continuous compounding). You have calculated that an appropriate up move for the tree would be 1.1990, a down move would be 0.8340, and a risk-neutral probability of an up move would be 66.12%. What is the value of the option?

Reference no: EM133070698

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