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Pricing Options on Foreign Currency with a Preset Exchange Rate

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Figure

Figure 1. Comparison of call prices for differing E values. The horizontal axis shows the preset exchange rates for at- the-money PE and GK call options
Figure 4 shows a comparison of PE and GK put pay- offs for differing values of E. On the horizontal axis, we show five expiration spot rates ranging from 1.05, above the spot rate (1.00), down to 0.85
Figure 5 shows the excess return lines for three origi- nation maturities, 0.2 years, 0.6 years, and 1.0 years
Figure 6. Put excess return versus term. ROEpPrice = (Payoffp – p)/Pricep. Excess return = ROEcc peROEgk1
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