IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v24y2024i8p1037-1055.html
   My bibliography  Save this article

FX Open Forward

Author

Listed:
  • Julien Hok
  • Alex S.L. Tse

Abstract

FX Open Forward is a derivative instrument where the contract holder has the obligation to purchase a specific amount of foreign currency under a fixed exchange rate by the contract expiry date. In contrast to a traditional forward contract, a distinctive feature of FX Open Forward is that the timing and notional size of the currency conversion can be freely chosen by the contract holder. Under a Black–Scholes model where interest rates can be negative, we provide a complete solution of the early exercise strategy of an FX Open Forward. When domestic rate and foreign rate are both positive (negative), the full contractual notional should be exercised when the spot FX level is sufficiently high (low). Unlike American options, the optimal waiting region of FX Open Forward is always connected even when interest rates are negative.

Suggested Citation

  • Julien Hok & Alex S.L. Tse, 2024. "FX Open Forward," Quantitative Finance, Taylor & Francis Journals, vol. 24(8), pages 1037-1055, August.
    • Handle: RePEc:taf:quantf:v:24:y:2024:i:8:p:1037-1055
    DOI: 10.1080/14697688.2024.2388802
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2024.2388802
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2024.2388802?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:24:y:2024:i:8:p:1037-1055. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.