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    Binomial tree for currency put option

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    An American put option to sell a swiss franc for dollars has a strike price of $0.80 and a time to maturity of one year. The volatility of the swiss franc is 10%, the dollar interest rate is 6%, the swiss franc interest rate is 3%, and the current exchange rate is 0.81. Use a tree with three time steps to value the option. Estimate the delta of the option from your tree.

    Problem from 'Option, Futures and Other Derivatives, by John C. Hull' 6th. Edition, 2006.

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    Solution Summary

    The solution calculates the value of the put option and the delta of the put option using Binomial tree with three time steps (see attachment in Excel file for full details and figures).