Suh, Sangwon; Zapatero, Fernando - In: Journal of Economic Dynamics and Control 32 (2008) 11, pp. 3478-3501
We propose the use of a new option which we call 'quadratic,' and that central banks could use to smooth exchange rate volatility through the hedging strategies of the issuers. We derive analytic pricing and hedging formulas. We suggest a criterion to derive the optimal (for the Central Bank)...