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randomh
07.10.2020 •
Mathematics
You are required to price a one-year, yen-denominated currency option on the USD. The exchange rate over the next year is modeled using a forward binomial tree with the number of periods equal to 4. Assume that the volatility of the exchange rate equals 0.1. The continuously compounded risk-free interest rate for the yen equals 0.05, while the continuously compounded risk-free interest rate for the USD equals 0.02. What is the value of the so-called up factor u in the resulting forward binomial tree
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Ответ:
The value of the so-called up factor is
Step-by-step explanation:
From the question we are told that
The number of period is n = 4
The volatility of the exchange rate is![v = 0.1](/tpl/images/0793/4207/f17ae.png)
The continuously compounded risk-free interest rate for the yen is r = 0.05
The continuously compounded risk-free interest rate for the USD is R = 0.02
Generally the so-called up factor u is mathematically represented as
=>![u = e^{0.1 + 0.05}](/tpl/images/0793/4207/938cd.png)
=>![u = e^{0.15}](/tpl/images/0793/4207/48a45.png)
=>![u = 1.1618](/tpl/images/0793/4207/5d94f.png)
Ответ:
the Czech rebublic and Slovakia