Use the binomial option pricing model to find the value of a call option on £10,000 with a strike price of €12,500.The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 .The current interest rates are i€ = 3% and are i£ = 4%.Choose the answer closest to yours.
A) €3,275
B) €2,500
C) €3,373
D) €3,243
Correct Answer:
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