The probabilities in the four period binomial model should be
so that the probabilities sum to 1.00
Question 26-6 D. should read:
What premium should you be willing to pay for the 91 day
option on HR?
The differences between the payment amounts go to the intermediary. The dollar payment is paid by Airlease. On a principal of $9 million Airlease must pay 6.3% and Boeing receives 5.0%. The remaining 1.3% goes to the intermediary. The euro payment is paid by Boeing. On a principal of €10 million Boeing must pay 11.90% and Airlease receives 13.00%. The 1.1% difference must be made up by the intermediary.