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...

We extend the procedures developed by Nelson and Ramaswamy (RFS, 1990) and Hull and White (JFQA, 1990) to accomodate more generalized diffusions and two possible correlated state variables thus yielding a bivariate vinomial options pricing technique. The advantage this technique offers is the...