VALUATION AND OPTIMAL EXERCISE TIME FOR THE BANXICO PUT OPTION

Begoñna Fernández Fernández () and Patricia Saavedra Barrera ()
Additional contact information
Begoñna Fernández Fernández: Facultad de Ciencias, Universidad Nacional Autónoma de México, Circuito Exterior, CV, México, 04510, D. F., México
Patricia Saavedra Barrera: Departamento de Matematicas, Universidad Autónoma Metropolitana, Unidad Iztapalapa, Apartado Postal 55-534, México 09340, D. F., México

International Journal of Theoretical and Applied Finance (IJTAF), 2003, vol. 06, issue 03, 257-275

Abstract: Since 1996, the Central Bank of México issues a put option in order to buy American Dollars as a way of increasing its international reserves. This is an exotic option that gives the right to the Mexican banks to sell this currency to the Central Bank at the price of the day before the date of exercise. The option has a maturity of one month and can be exercised on any day during this period, subject to an additional condition that depends on the average price of the Dollar during the previous 20 days. In this work we study the valuation and the optimal time of exercise of this option under the Binomial and the Black–Scholes Models. The optimal time of exercise is found for the Binomial model and a rule of exercise is proposed for the Black–Scholes Model. Numerical results are included to illustrate the performance of this rule of exercise.

Keywords: Put American option; exotic option; optimal exercise time (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S021902490300189X
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:06:y:2003:i:03:n:s021902490300189x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S021902490300189X

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().