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An Equilibrium Approach To Pricing Foreign Currency Options
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Book Synopsis An Equilibrium Approach to Pricing Foreign Currency Options by : Carsten Sørensen
Download or read book An Equilibrium Approach to Pricing Foreign Currency Options written by Carsten Sørensen and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper presents a modified version of the Garman-Kohlhagen formula for pricing European currency options. The equilibrium approach deviates from the no-arbitrage approach by allowing domestic and foreign interest rates and their dynamics to be determined endogenously in the model. By using the relations between exchange rate dynamics and the dynamics of interest rates, I provide a new characterization of the relevant volatilities for European currency option pricing, which only depends on parameters describing the variability of the log-exchange rate. The implications of the model for the valuation of American currency options and optimal exercise strategies are examined by applying numerical methods.
Book Synopsis An Equilibrium Approach to Pricing Foreign Currency Option by : Carsten Sørensen
Download or read book An Equilibrium Approach to Pricing Foreign Currency Option written by Carsten Sørensen and published by . This book was released on 1997 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Pricing European Currency Options in Implicit Target Zones by : Carsten Sørensen
Download or read book Pricing European Currency Options in Implicit Target Zones written by Carsten Sørensen and published by . This book was released on 1993 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Pricing Foreign Exchange Options by : David W.K. Yeung
Download or read book Pricing Foreign Exchange Options written by David W.K. Yeung and published by Hong Kong University Press. This book was released on 1998-02-01 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book develops a new and interesting approach to the valuation of foreign exchange options. The authors synthesise international monetary theory with the Samuelson-Black-Scholes insight that assets prices follow diffusion processes, and obtain a system of stochastic differential equations to model exchange rate dynamics under the influence of purchasing power parity. An exact formula to price foreign currency options is obtained, which incorporates the influence of its purchasing power parity. The book is essential to advanced undergraduate and graduate students who wish to learn about the modern theory of foreign exchange options. Since its results are completely operational, the book will also prove to be invaluable for practitioners in the financial markets.
Book Synopsis Currency Options And Exchange Rate Economics by : Zhaohui Chen
Download or read book Currency Options And Exchange Rate Economics written by Zhaohui Chen and published by World Scientific. This book was released on 1998-04-21 with total page 218 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume is a collection of classical and recent empirical studies of currency options and their implications for issues of exchange rate economics, such as exchange rate risk premium, volatility, market expectations, and credibility of exchange rate regimes. It contains applications on how to extract useful information from option market data for financial forecasting policy purposes. The subjects are discussed in a self-contained, user-friendly format, with introductory chapters on currency option theory and currency option markets.The book can be used as supplementary reading for graduate finance and international economics courses, as training material for central bank and regulatory authorities, or as a reference book for financial analysts.
Book Synopsis Foreign Exchange Option Pricing by : Iain J. Clark
Download or read book Foreign Exchange Option Pricing written by Iain J. Clark and published by John Wiley & Sons. This book was released on 2011-10-20 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book covers foreign exchange options from the point of view of the finance practitioner. It contains everything a quant or trader working in a bank or hedge fund would need to know about the mathematics of foreign exchange—not just the theoretical mathematics covered in other books but also comprehensive coverage of implementation, pricing and calibration. With content developed with input from traders and with examples using real-world data, this book introduces many of the more commonly requested products from FX options trading desks, together with the models that capture the risk characteristics necessary to price these products accurately. Crucially, this book describes the numerical methods required for calibration of these models – an area often neglected in the literature, which is nevertheless of paramount importance in practice. Thorough treatment is given in one unified text to the following features: Correct market conventions for FX volatility surface construction Adjustment for settlement and delayed delivery of options Pricing of vanillas and barrier options under the volatility smile Barrier bending for limiting barrier discontinuity risk near expiry Industry strength partial differential equations in one and several spatial variables using finite differences on nonuniform grids Fourier transform methods for pricing European options using characteristic functions Stochastic and local volatility models, and a mixed stochastic/local volatility model Three-factor long-dated FX model Numerical calibration techniques for all the models in this work The augmented state variable approach for pricing strongly path-dependent options using either partial differential equations or Monte Carlo simulation Connecting mathematically rigorous theory with practice, this is the essential guide to foreign exchange options in the context of the real financial marketplace.
Book Synopsis Pricing Foreign Currency and Cross-Currency Options Under GARCH. by : Jin-Chuan Duan
Download or read book Pricing Foreign Currency and Cross-Currency Options Under GARCH. written by Jin-Chuan Duan and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper generalizes the GARCH option pricing methodology in Duan (1995, Mathematical Finance) to a two-country setting. Specifically, we assume a bivariate nonlinear GARCH system for the exchange rate and the foreign asset price, and generalize the local risk-neutral valuation relationship in Duan (1995). We derive the equilibrium GARCH processes for the exchange rate and the foreign asset price in the two-country economy. Foreign currency options and cross-currency options can then be valued using the well-known risk-neutral valuation technique. Our setup allows rich empirical regularities such as stochastic volatility, fat tails, and the so-called leverage effect. We also run simulations to price quanto options and find that when the true environment is GARCH a constant variance model is not reliable in most cases. The proposed equilibrium valuation framework to price foreign currency and cross-currency options is the first of its kind in the literature.
Book Synopsis The Equilibrium Approach to Exchange Rates by : Prakash Apte
Download or read book The Equilibrium Approach to Exchange Rates written by Prakash Apte and published by . This book was released on 1996 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nominal exchange rate is determined by differences in initial wealths the currencies of richer countries tend to be overvalued by PPP standards and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration tests of the version of the model with constant relative risk aversion (CRRA) and homothetic preferences. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable.
Author :Christian Pierdzioch Publisher :Springer Science & Business Media ISBN 13 :9783540427452 Total Pages :232 pages Book Rating :4.4/5 (274 download)
Book Synopsis Noise Trading, Central Bank Interventions, and the Informational Content of Foreign Currency Options by : Christian Pierdzioch
Download or read book Noise Trading, Central Bank Interventions, and the Informational Content of Foreign Currency Options written by Christian Pierdzioch and published by Springer Science & Business Media. This book was released on 2001-12-06 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: A flexible instrument to insure against adverse exchange rate movements are options on foreign currency. Often a relatively simple foreign currency option valuation model is used to address issues related to the pricing and hedging of such options. The results of many empirical studies document that real-world foreign currency option premia deviate from those predicted by the baseline model. In the first part of the book, it is shown that a noise trader model can help to explain the observed mispricing of the baseline foreign currency option pricing model. In the second part of the book, it is studied how policymakers can exploit the pricing errors of the baseline model. In particular, it is examined how option pricing theory can be applied to assess the effectiveness of central bank interventions in the foreign exchange market. To this end, a model is constructed to analyze the effectiveness of the interventions conducted by the Deutsche Bundesbank during the Louvre period.
Book Synopsis Endogenous Currency of Price Setting in a Dynamic Open Economy Model by : Michael B. Devereux
Download or read book Endogenous Currency of Price Setting in a Dynamic Open Economy Model written by Michael B. Devereux and published by . This book was released on 2001 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many papers in the recent literature in open economy macroeconomics make different assumptions about the currency in which firms set their export prices when nominal prices must be pre-set. But to date, all of these studies take the currency of price setting as exogenous. This paper sets up a simple two-country general equilibrium model in which exporting firms can choose the currency in which they set prices for sales to foreign markets. We make two alternative assumptions about the structure of international financial markets: one where there are complete markets for hedging consumption risk internationally, and the other without risk-sharing possibilities. Our results are quite sharp: exporters will generally wish to set prices in the currency of the country that has the most stable monetary policy. When monetary stability is similar among countries, there is an equilibrium where firms from all countries set their price in the currency of the buyer (local currency pricing). But except for a special case where money variances are exactly identical across countries, there is no equilibrium where all firms set export prices in their own currencies (producer currency pricing).
Book Synopsis Essays on Equilibrium Valuation of Options, Theorem and Empirical Estimates by : Melanie Cao
Download or read book Essays on Equilibrium Valuation of Options, Theorem and Empirical Estimates written by Melanie Cao and published by . This book was released on 1997 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays which study the valuation of options in an equilibrium framework. The first essay uses a general equilibrium model to study the valuation of options on the market portfolio with predictable returns and stochastic volatility in a complete market. In a closed endowment economy where aggregate dividend is the only source of uncertainty, I investigate why the stock return exhibits certain predictable features. I also examine the equilibrium relationship between the price of the market portfolio and its volatility, as well as the relationship between the spot interest rate and the market volatility. Equilibrium conditions imply that the predictable feature of the market portfolio is induced by the mean-reverting of the rate of dividend growth. It is shown that there is strong interdependence between the stock price process and its volatility process. Using the Euler equation, I derive equilibrium pricing formulas for options on the market portfolio which incorporate both stochastic volatility and stochastic interest rates. Since there is only one source of uncertainty, this model preserves the completeness feature for hedging and risk management purposes. With realistic parameter values, numerical examples show that stochastic volatility and stochastic interest rates are both necessary for correcting the Black-Scholes pricing biases. The second essay focuses on the currency options in an incomplete market where the economy is subject to shocks in aggregate dividend and money supply. The key feature is that the exchange rate exhibits systematic jump risks which should be priced in the currency options. The closed-endowment equilibrium model in the first essay is extended to a small open monetary economy with stochastic jump-diffusion processes for both the money supply and aggregate dividend. It is shown that the exchange rate is affected by both government monetary policies and aggregate dividends. Since the jump in the exchange rate is correlated with aggregate consumption, the jump risk in the exchange rate derived from aggregate consumption must be priced by means of utility maximization. I further derive the foreign agents' risk-neutral valuation of the European currency option and provide restrictions that ensure the law of one price in currency option pricing. In general, these restrictions depend on the agent's risk preference. The objective of the third essay is to empirically study the existence of systematic jump risks in exchange rates and analyze their importance for currency option pricing. The empirical study is based on the theoretical model studied in the second essay, which argues that exchange rates are inherently correlated with the market and so must exhibit systematic jump risks. The third essay uses the maximum-likelihood method to estimate the joint distribution of exchange rates and the price of the market portfolio. Empirical results show that it is important to incorporate both systematic and non-systematic jump components in exchange rates in order to correctly price currency options.
Download or read book Options written by Stewart Dimont Hodges and published by Manchester University Press. This book was released on 1990 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Foreign Currency Options by : Selma Kurtay
Download or read book Foreign Currency Options written by Selma Kurtay and published by . This book was released on 1997 with total page 147 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Modern Investment Management by : Bob Litterman
Download or read book Modern Investment Management written by Bob Litterman and published by John Wiley & Sons. This book was released on 2004-11-19 with total page 648 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dieser Band füllt eine echte Marktlücke. "Goldman Sach's Modern Investment" gibt eine Einführung in moderne Investment Management Verfahren, wie sie von Goldman Sachs Asset Management verwendet werden, um erstklassige Investitionsrenditen zu erzielen. Erläutert werden u.a. die moderne Portfoliotheorie (Portfoliodiversifikation zur Risikostreuung), Capital Asset Pricing (Verfahren zur Ermittlung des Risiko-Rendite-Austauschverhältnisses von Finanzanlagen, bei dem der unterschiedliche Risikogehalt von Finanztiteln berücksichtigt wird) sowie eine Reihe aktueller Themen wie z.B. strategische Portfoliostrukturierung, Risikobudgetierung und aktives Portfolio Management. Hier erhalten Sie die Mittel an die Hand, um die Goldman Sachs Asset Management Methode für sich selbst umzusetzen. Das von Fischer Black und Bob Litterman gemeinsam entwickelte Black-Litterman Asset Allocation Model gehört zu den angesehensten und meist verwendeten Modellen zur Portfoliostrukturierung. Litterman und seine Asset Management Group sind oft die treibende Kraft, wenn es um Portfoliostrukturierung und Investmententscheidungen der 100 international größten Pensionsfonds geht.
Book Synopsis Global Corporate Finance: A Focused Approach (2nd Edition) by : Suk Hi Kim
Download or read book Global Corporate Finance: A Focused Approach (2nd Edition) written by Suk Hi Kim and published by World Scientific Publishing Company. This book was released on 2014-12-30 with total page 411 pages. Available in PDF, EPUB and Kindle. Book excerpt: Global Corporate Finance, 2nd edition written by a son-father team introduces students and practitioners to those principles essential to the understanding of global financial problems and the policies that global business managers contend with. The objective of this book is to equip current and future business leaders with the tools they need to interpret the issues, to make sound global financial decisions, and to manage the wide variety of risks that modern businesses face in a competitive global environment. In line with its objective, the book stresses practical applications in a concise and straightforward manner, without a complex treatment of theoretical concepts. Instructors who want students to possess practical, job-oriented skills in international finance will find this unique text ideal for their needs. Suitable for both undergraduate- and graduate-level courses in international finances, this book is clearly the 'go-to' book on one most important aspect of corporate finance.The revised, 2nd edition offers updates to the chapters, answers to some end-of-chapter problems, and a number of practical case-studies. It also comes with a complete set of online ancillary materials, including an Instructor's Manual, a test bank of 500 multiple-choice questions, two sets of PowerPoint lecture slides, and separate, detailed lecture notes.The ancillary materials are available upon request for instructors who adopt this book as a course text.
Book Synopsis Global Corporate Finance by : Kenneth A. Kim
Download or read book Global Corporate Finance written by Kenneth A. Kim and published by World Scientific. This book was released on 2011 with total page 435 pages. Available in PDF, EPUB and Kindle. Book excerpt: Global Corporate Finance: A Focused Approach introduces students to basic principles of international corporate finance. The book stresses practical applications in a user-friendly format. It is suitable for both undergraduate and graduate level courses in international finance, and can be used in any part of the world as it does take a nationalistic viewpoint. This self-contained book combines theory and applications. Students will be exposed to key tools and techniques of global corporate finance without a complex treatment of theoretical financial concepts. A test bank and powerpoint slides are available upon request for all instructors who adopt this book as a course text. Please send your request to [email protected].
Book Synopsis General Equilibrium Option Pricing Method: Theoretical and Empirical Study by : Jian Chen
Download or read book General Equilibrium Option Pricing Method: Theoretical and Empirical Study written by Jian Chen and published by Springer. This book was released on 2018-04-10 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
