Download or read book Valuation of Foreign Currency Options with the Paretian Stable Option Pricing Model written by Stanley J. Hales and published by . This book was released on 1997 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Option writers, purchasers and traders require accurate information regarding the prices of options written on an underlying asset. Unfortunately, many option pricing models, including the familiar Black-Scholes (BS) model, undervalue options which exhibit a low probability of exercise. Many of the models also systematically misprice options over time, and over a range of exercise prices on any given day. One possible explanation for the mispricing arises from the BS assumption of a log-normally distributed underlying asset price. Since historic foreign exchange prices are typically leptokurtic and perhaps skewed, accounting for this fact with the log-stable Paretian distribution may reduce option pricing biases relative to the BS model. This paper applies McCulloch's (1996) log-stable option pricing model to a sample of German mark and Japanese yen futures options traded on the Chicago Mercantile Exchange. The stable model generalizes the distributional assumptions underlying Gaussian foreign currency models such as BS by characterizing the underlying asset price distribution with three parameters that measure kurtosis, skewness and scale rather than one that measures volatility. Because the log-stable model nests the BS model, a direct comparison of pricing errors and systematic biases is performed. The numerical calculations indicate that the implicit distribution of the underlying futures prices for both the German mark and Japanese yen are significantly leptokurtic and occasionally skewed over the 1985-1995 sample period. Furthermore, the log-stable model, when leptokurtic and possibly skewed, significantly reduces in-sample absolute and percentage pricing errors, the root mean squared pricing error, and attenuates the systematic pricing bias of the 'volatility smile' across strike prices relative to the BS model for both currencies. The improvement is particularly significant for the difficult-to-price, far out-of-the-money options. While the out-of-sample pricing errors for near-the-money and in-the-money options are not significantly different between the BS and the general stable model, out-of-sample average pricing errors are reduced for far out-of-the money options.

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 with total page 224 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.

Download or read book The Valuation Handbook Custom Chapter 14 written by Rawley Thomas and published by John Wiley & Sons. This book was released on 2009-10-01 with total page 806 pages. Available in PDF, EPUB and Kindle. Book excerpt: The definitive guide to valuation written by a who's who of today's top practitioners The Valuation Handbook differs significantly from other related books on this topic because the contributors are practitioners, academics, and investment firms that explain how they value companies and other assets. It concentrates on specific and innovative valuation techniques, rather than the theoretical approaches more generally accepted and discussed. Given the extreme volatility of the stock market, valuation is a critical issue for analysts, investors, and businesses. Here, various professional contributors explain how their firms approach the valuation process, while academic contributors share their valuation consulting and research experience. Examines how to value assets in today's dynamic market setting Offers a broad spectrum of ideas from some of the top practitioners and academics in this field Highlights state-of-the-art approaches to company valuation Filled with in-depth insights and expert advice, The Valuation Handbook puts this difficult discipline in perspective.

Download or read book The Valuation Handbook written by Rawley Thomas and published by John Wiley & Sons. This book was released on 2010 with total page 657 pages. Available in PDF, EPUB and Kindle. Book excerpt: The definitive guide to valuation written by a who's who of today's top practitioners The Valuation Handbook differs significantly from other related books on this topic because the contributors are practitioners, academics, and investment firms that explain how they value companies and other assets. It concentrates on specific and innovative valuation techniques, rather than the theoretical approaches more generally accepted and discussed. Given the extreme volatility of the stock market, valuation is a critical issue for analysts, investors, and businesses. Here, various professional contributors explain how their firms approach the valuation process, while academic contributors share their valuation consulting and research experience. Examines how to value assets in today's dynamic market setting Offers a broad spectrum of ideas from some of the top practitioners and academics in this field Highlights state-of-the-art approaches to company valuation Filled with in-depth insights and expert advice, The Valuation Handbook puts this difficult discipline in perspective.

Download or read book Valuing Foreign Currency Options with a Mean Reverting Process written by Cho-Hoi Hui and published by . This book was released on 2011 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: The theoretical prediction on targeted exchange rates expects mean reversion of the exchange rates. There is some empirical evidence to support this prediction. This paper presents a model for valuing European foreign exchange options in which the forward foreign exchange rate follows a mean-reverting lognormal process. The corresponding closed-form solutions for the option valuation are derived. The mean-reverting process has material impact on the foreign exchange rate option values and their hedge parameters. This tends to decrease the value of a simple put or call. On the other hand, the process also keeps the exchange rate in a small range around the mean level. As this is the region in which an option's intrinsic value is high because of the level of its strike price, there is also a tendency for option values to be enhanced compared with the values of the Blackndash;Scholes model. The numerical results using the forward exchange rates of the Hong Kong dollar and market data of their options show that both of these effects are important for the realistic choices of parameter values. As the dynamics of targeted exchange rates may not follow the standard lognormal process as described by the Blackndash;Scholes model, the mean-reverting option-pricing model may be considered for the valuation of options and estimation of associated hedge parameters on targeted exchange rates.

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.

Download or read book Currency Option Pricing in Credible Target Zones written by Bernard Dumas and published by . This book was released on 1993 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a model for valuing options on a currency which is maintained within a band. The starting point of our model is the well known Krugman model for exchange-rate behavior within a target zone. Results from model runs provide insight into evidence reported by other authors of mispricing of currency options by extensions of the Black-Scholes model.

Download or read book The Valuation of the American Premium in the Foreign Currency Options Market written by Philippe Jorion and published by . This book was released on 1987 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Probability of Early Exercise written by James N. Bodurtha and published by . This book was released on 1992 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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.

Download or read book Tests of an American Option Pricing Model on the Foreign Currency Options Market written by James N. Bodurtha and published by . This book was released on 1986 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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.

Download or read book Option Valuation written by Stuart McLean Turnbull and published by . This book was released on 1987 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Martingale Methods in Financial Modelling written by Marek Musiela and published by Springer Science & Business Media. This book was released on 2013-06-29 with total page 521 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive and self-contained treatment of the theory and practice of option pricing. The role of martingale methods in financial modeling is exposed. The emphasis is on using arbitrage-free models already accepted by the market as well as on building the new ones. Standard calls and puts together with numerous examples of exotic options such as barriers and quantos, for example on stocks, indices, currencies and interest rates are analysed. The importance of choosing a convenient numeraire in price calculations is explained. Mathematical and financial language is used so as to bring mathematicians closer to practical problems of finance and presenting to the industry useful maths tools.

Download or read book Option Pricing written by Menachem Brenner and published by Free Press. This book was released on 1983 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book American Style Derivatives written by Jerome Detemple and published by CRC Press. This book was released on 2005-12-09 with total page 247 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on recent developments in the field, American-Style Derivatives provides an extensive treatment of option pricing with emphasis on the valuation of American options on dividend-paying assets. This book reviews valuation principles for European contingent claims and extends the analysis to American contingent claims. It presents basic valuation principles for American options including barrier, capped, and multi-asset options. It also reviews numerical methods for option pricing and compares their relative performance. Ideal for students and researchers in quantitative finance, this material is accessible to those with a background in stochastic processes or derivative securities.

Download or read book Options on Foreign Exchange written by David F. DeRosa and published by John Wiley & Sons. This book was released on 2000-01-18 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt: Your A to Z Guide to the World's Largest Option Market "A clearly written manual that flows smoothly. Whether you have 20 years of experience in the FX options markets or none, you will learn something interesting from reading this book. Highly recommended for both traders and non-traders." * Adam Kreysar, Global Head FX Options Warburg Dillon Read "DeRosa presents technical material with a minimum of technical fuss. Filtered through his scholarship and practical trading experience, up-to-date topics such as exotic options, forward volatilities, and the volatility smile become accessible. The book will be extremely useful to asset managers and risk managers." * Allan M. Malz, Partner The RiskMetrics Group "This new edition of Options on Foreign Exchange provides an exhaustive review of the literature on currency options, in addition to covering the practical aspects of the business. It is greatly pedagogical and well written-as can be expected from David DeRosa." * Nassim Taleb, President Empirica Capital LLC