This paper derives exact pricing equations for American and European puts and calls on foreign exchange and discusses hedging strategy. Because every call option on foreign currency is simultaneously a put option on the domestic currency, an equivalence relation exists that allows the immediate derivation of put equations from the corresponding call formulas. The call and put pricing formulas are unlike the Black-Scholes equations for stock options in that there are two relevant interest rates, interest rates are stochastic, and boundary constraints differ. In addition, both American call and put options have values larger than their European counterparts.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
For technical questions regarding this item, or to correct its listing, contact: (Thomas Krichel).
Related research
Keywords:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)