Question

Please use the following information to find the value of a one-year call option in USD to buy EUR for USD using

the risk-neutral valuation approach.

Contract size: EUR 10,000

Spot rate: USD 1.50 / EUR

Strike price: USD 1.80 / EUR

One year forward rate: USD 1.50 / EUR

Future spot price in Up node: USD 2.10 / EUR

Future spot price in Down node: USD 1.10 / EUR

One year US interest rate: 20 percent

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