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Optimal use of currency options

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  • Murtagh, BA

Abstract

The use of currency options to balance foreign exchange exposure is considered. The paper describes a computer model which optimizes the level of hedging in options and the exercise price while simultaneously achieving a desired level of risk. Both the objective function and constraints turn out to be nonlinear, and a nonlinear programming code is employed to solve the model. Details of computer implementation are given and a numerical example is described.

Suggested Citation

  • Murtagh, BA, 1989. "Optimal use of currency options," Omega, Elsevier, vol. 17(2), pages 189-192.
    • Handle: RePEc:eee:jomega:v:17:y:1989:i:2:p:189-192
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    Cited by:

    1. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

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