When moving from valuing an option on a non-dividend paying stock to an option on a currency which of the following is true?
A) The risk-free rate is replaced by the excess of the domestic risk-free rate over the foreign risk-free rate in all calculations
B) The formula for u changes
C) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign risk-free rate for discounting
D) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign risk-free rate when p is calculated

Question

Quizplus · Accepted Answer

The Answer of When moving from valuing an option on a non-dividend paying stock to an option on a currency which of the following is true?
A) The risk-free rate is replaced by the excess of the domestic risk-free rate over the foreign risk-free rate in all calculations
B) The formula for u changes
C) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign risk-free rate for discounting
D) The risk-free rate be replaced by the excess of the domestic risk-free rate over the foreign risk-free rate when p is calculated

When Moving from Valuing an Option on a Non-Dividend Paying