Exchange Rate Economic Exposure under Collusive Pricing and Hedging Using Asian Currency Options

Angelos Kanas

Economia Internazionale / International Economics, 2000, vol. 53, issue 1, pages 53-67

Abstract: This paper provides a financial engineering exercise for a specific form of exchange rate economic (competitiveness) exposure and discusses the hedging solution for this exposure. Specifically, it analyses exposure in a market where international competitors follow a type of collusive pricing behaviour, and derives the risk profile of this exposure. It then proposes a hedging scenario based on a portfolio of Asian Currency Options consisting of a 1:1 Bull Cali Spread and a short put. The practical implications of this paper are of interest to currency option traders who can launch new hedging applications of currency option portfolios, and to exposed firms facing this particular form of economic exposure.

Keywords: Collusive Pricing; Asian Options; Bull Cali Spreads; Hedging (search for similar items in EconPapers)
JEL-codes: F30 F31 F39 G22 (search for similar items in EconPapers)
Date: 2000

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Persistent link: http://EconPapers.repec.org/RePEc:ris:ecoint:0255

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