18. The spot USD-EUR exchange rate is USD1.50/EUR. Consider a six-month (= 0.5 years) call option on the EUR with a strike of USD1.50/EUR. Suppose the volatility of the exchange rate is 20%, the six-month interest rate on the USD is 1.5%, and the six-month interest rate on the EUR is 2.5%, both in continuously-compounded terms.
(a) What is the Black-Scholes price of the call?
(b) If you had written this call on EUR 100 million, what would you do to delta-hedge your position?
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.