Hi Team BT,
I was wondering anyone could help me with answering this question, its not been taught in my course yet and we have been sent off to understand it ourselves using our own methods, I keep coming up short so figured id reach out to the greater community here. Here is the question i need assistance with:
"A treasurer is contemplating buying a three-month average price (Asian) put option on the Australian dollar with an exercise price equal to the current spot rate of the Australian dollar of AUD1 = USD0.7200. Her treasury analyst estimates that the Australian dollar will either rise or fall by 5% during each on-month period. The term structure is flat in both Australia and the US, with risk free rates of 1.5% and 0.5% p.a. respectively, continuously compounded.
a) Build a three-period binomial model to price the average price put option (calculated using the prices at the end of months 1, 2 & 3). Making sure you include a binomial tree for the exchange rate. "
Im new to this site so not sure if ive posted in the correct area - but any help would be greatly appreciated.
Thank you
I was wondering anyone could help me with answering this question, its not been taught in my course yet and we have been sent off to understand it ourselves using our own methods, I keep coming up short so figured id reach out to the greater community here. Here is the question i need assistance with:
"A treasurer is contemplating buying a three-month average price (Asian) put option on the Australian dollar with an exercise price equal to the current spot rate of the Australian dollar of AUD1 = USD0.7200. Her treasury analyst estimates that the Australian dollar will either rise or fall by 5% during each on-month period. The term structure is flat in both Australia and the US, with risk free rates of 1.5% and 0.5% p.a. respectively, continuously compounded.
a) Build a three-period binomial model to price the average price put option (calculated using the prices at the end of months 1, 2 & 3). Making sure you include a binomial tree for the exchange rate. "
Im new to this site so not sure if ive posted in the correct area - but any help would be greatly appreciated.
Thank you