Path‐dependent currency options with mean reversion
This paper develops a path‐dependent currency option pricing framework in which the exchange rate follows a mean‐reverting lognormal process. Analytical solutions are derived for barrier options with a constant barrier, lookback options, and turbo warrants. As the analytical solutions are obtained using a Laplace transform, this study numerically shows that the solution implemented with a numerical Laplace inversion is efficient and accurate. The pricing behavior of path‐dependent options with mean reversion is contrasted with the Black‐Scholes model. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:275–293, 2008
Year of publication: |
2008
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Authors: | Wong, Hoi Ying ; Lau, Ka Yung |
Published in: |
Journal of Futures Markets. - John Wiley & Sons, Ltd.. - Vol. 28.2008, 3, p. 275-293
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Publisher: |
John Wiley & Sons, Ltd. |
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freely available
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