Currency Option Pricing with Stochastic Domestic and Foreign Interest Rates
This study develops a currency option pricing model under stochastic interest rates when interest rate parity holds, and it is assumed that domestic and foreign bond prices have local variances that depend only on time. We demonstrate how existing currency option models are simply derived from one framework. Empirical tests employing transactions option data reveal that a particularly simple form of the stochastic rate model is uniformly more accurate than a constant rate model for all boundaries and maturities tested.
Year of publication: |
1991
|
---|---|
Authors: | Hilliard, Jimmy E. ; Madura, Jeff ; Tucker, Alan L. |
Published in: |
Journal of Financial and Quantitative Analysis. - Cambridge University Press. - Vol. 26.1991, 02, p. 139-151
|
Publisher: |
Cambridge University Press |
Description of contents: | Abstract [journals.cambridge.org] |
Saved in:
Saved in favorites
Similar items by person
-
Currency option pricing with stochastic domestic and foreign interest rates
Hilliard, Jimmy E., (1991)
-
Market-determined premia for American currency spot options
Hilliard, Jimmy E., (1991)
-
Hilliard, Jimmy E., (1992)
- More ...