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A financial institution has just bought 6-month European call options on the Chinese yuan. Suppose that...

A financial institution has just bought 6-month European call options on the Chinese yuan. Suppose that the spot exchange rate is 14 cents per yuan, the exercise price is 15 cents per yuan, the risk-free interest rate in the United States is 2% per annum, the risk-free interest rate in China is 4% per annum, and the volatility of the yen is 12% per annum. Calculate vega of the financial institution’s position. Check the accuracy of your vega estimate by valuing the option at a volatility of 12% and 12.1% sequentially.

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