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Influence of the Correlation Coefficient on the Risk of the Exchange Option

In: Eurasian Economic Perspectives

Author

Listed:
  • Ewa Dziawgo

    (Kazimierz Wielki University)

Abstract

The chapter illustrates the properties of the exchange option: the definition, construction, and functioning of instrument, instrument’s construction, types options, payoff functions, the pricing model, the effect of the correlation coefficient on the option price and value parameters: delta, vega, and theta. These parameters are the very important risk measures. The analysis of the variation in the value of risk measures provides information on the impact of changes of specific factors on the option price. The objective of this chapter is analysis of the influence of a change in the value of correlation coefficient between the return rates of underlying instruments on the variation in the option’s price and values of the risk measures. Many Polish firms running the businesses on Turkish and Romanian markets. So, the empirical research existed in this chapter are illustrated based on a simulation of valuations of currency exchange options of Turkish Lira (TRY) into Romanian Leu (RON).

Suggested Citation

  • Ewa Dziawgo, 2020. "Influence of the Correlation Coefficient on the Risk of the Exchange Option," Eurasian Studies in Business and Economics, in: Mehmet Huseyin Bilgin & Hakan Danis & Gökhan Karabulut & Giray Gözgor (ed.), Eurasian Economic Perspectives, pages 241-249, Springer.
    • Handle: RePEc:spr:eurchp:978-3-030-35040-6_15
    DOI: 10.1007/978-3-030-35040-6_15
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