The same call from the last question (a 1-period call option on €10,000 with a strike price of $12,500. could also be thought of as a 1-period at-the-money put option on $12,500 with a strike price of €10,000.
As before, the spot exchange rate is €1.00 = $1.25. In the next period, the euro can increase in dollar value to $2.00 or fall to $1.00. The interest rate in dollars is i_$ = 27.50%; the interest rate in euro is i_€ = 2%.
Draw the binomial tree for this putoption.

Question

Quizplus · Accepted Answer

The Answer of The same call from the last question (a 1-period call option on €10,000 with a strike price of $12,500. could also be thought of as a 1-period at-the-money put option on $12,500 with a strike price of €10,000. As before, the spot exchange rate is €1.00 = $1.25. In the next period, the euro can increase in dollar value to $2.00 or fall to $1.00. The interest rate in dollars is i_$ = 27.50%; the interest rate in euro is i_€ = 2%. Draw the binomial tree for this putoption.

The Same Call from the Last Question (A 1-Period Call