In this paper we estimate risk-neutral probability density functions from EUR/HUF currency options using the Malz (1997) method. First, we compare different option-based indicators. We present so-called 'shortcut' indicators, i.e. indicators that can be calculated directly, without the...

This paper deals with the problem of pricing European currency options in the mixed fractional Brownian environment. Both the pricing formula and the mixed fractional partial differential equation for European call currency options are obtained. Some Greeks and the estimator of volatility are...

This paper develops a Fourier transform method with an asymptotic expansion approach for option pricing. The method is applied to European currency options with a libor market model of interest rates and jump-diffusion stochastic volatility models of spot exchange rates. In particular, we derive...

This paper develops a general approximation scheme, henceforth called a hybrid asymptotic expansion scheme for valuation of multi-factor European path-independent derivatives. Specifically, we apply it to pricing long-term currency options under a market model of interest rates and a general...

In this paper we test the information content of risk-neutral density functions estimated by the method of Malz [1997. Estimating the probability distribution of the future exchange rate from options prices. Journal of Derivatives 5, no. 2: 18-36]. The main question is whether risk-neutral...

If a probability distribution is sufficiently close to a normal distribution, its density can be approximated by a Gram/Charlier Series A expansion. In option pricing, this has been used to fit risk-neutral asset price distributions to the implied volatility smile, ensuring an arbitrage-free...

Using a finite-horizon general equilibrium model with uncertainty and money, we characterize situations where tax arbitrage opportunities may arise for international portfolio investors in an economy with heterogeneous capital income taxation where foreign currency exposure can be hedged using...

<Para ID="Par1">In this paper, we provide a novel representation of delta-hedged option returns in a stochastic volatility environment. The representation of delta-hedged option returns provided in this paper consists of two terms: volatility risk premium and parameter estimation risk. In an empirical analysis,...</para>

This paper tests the relationship between short dated and long dated implied volatilities obtained from Tokyo market currency option prices by employing three different volatility models: a mean reverting model, a GARCH model, and an EGARCH model. We document evidence that long dated average...

Limited public funds for infrastructures have the government consider joining the private in a BOT project finance scheme. Generally, the BOT projects entail lots of managerial flexibilities that may induce the radical change of project's cash flows, an asymmetric payoff, when facing on the...