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6. Use binomial option pricing model for this question. Suppose the current spot rate for USD/CHF is 0.7000. You need to find
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Answer #1

Spot Rate

USD/CHF

0.7

Strike Price

0.68

Total Investment Today

half the price of share - price of option

0.38695 - max(0.7739,0.68)

Considering UP

Portfolio Value Today (UP State)

0.38695

Portfolio Value Today (Down State)

0.3166 - max(0.6332,0.68)

0.3634

Payoff for Up state

0.38695

Pay off for Downstate

0.3634

Hedge Ration

SPOT RATE * Variance

0.25438

Hedge Ratio

0.65

0.657397597

Bond Face Value

1

CHF

Bond Value in up state

0.5-0.7739

0.2739

Premium Payoff in Upstate

0.2739

Premium payoff in downstate

0.18
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