Suppose that the spot price of the Swiss franc (CHF) is $0.99 and that the Swiss franc/U.S. dollar exchange rate has an annual volatility of 10% (calculated on the basis of continuously compounded returns). The risk-free rates of interest in Switzerland and the United States are 3% and 2% p.a., respectively.
a) Calculate the dollar value of a European call option to buy Swiss francs at current spot exchange rate for the contracts that have 4 months to their maturity. The contract size for the options is CHF62,500.
b) Use put-call parity to calculate the price of an identical European put option position.
c) What is the dollar price of the same maturity call option for which the underlying currency is USD and the strike price is equal to the current spot exchange rate?