Valuing currency swap contracts in uncertain financial market

Yi Zhang (), Jinwu Gao () and Zongfei Fu ()
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Yi Zhang: Renmin University of China
Jinwu Gao: Renmin University of China
Zongfei Fu: Renmin University of China

Fuzzy Optimization and Decision Making, 2019, vol. 18, issue 1, No 2, 15-35

Abstract: Abstract Swap is a financial contract between two counterparties who agree to exchange one cash flow stream with the other according to some predetermined rules. When the cash flows are interest payments of different currencies, the swap is called a currency swap. In this paper, it is assumed that the exchange rate follows some uncertain differential equations, and the currency swap contracts in uncertain financial market are discussed. For dealing with long-term, short-term and super-short circumstances, three currency swap models are proposed, respectively. Their explicit solutions are developed through Yao–Chen formula. Moreover, a numerical method is designed for simplifying calculation. Finally, examples are given to show the effectiveness of the theory developed in this paper.

Keywords: Currency swap; Exchange rate; Uncertain currency model; Uncertain process; Yao–Chen formula (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s10700-018-9284-5

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