Modeling Volatility in Foreign Currency Option Pricing

Ariful Hoque (), Felix Chan and Meher Manzur
Additional contact information
Meher Manzur: Curtin University of Technology, Australia

Multinational Finance Journal, 2009, vol. 13, issue 3-4, 189-208

Abstract: This paper presents a general optimization framework to forecast put and call option prices by exploiting the volatility of the options prices. The approach is flexible in that different objective functions for predicting the underlying volatility can be modified and adapted in the proposed framework. The framework is implemented empirically for four major currencies, including Euro. The forecast performance of this framework is compared with those of the Multiplicative Error Model (MEM) of implied volatility and the GARCH(1,1). The results indicate that the proposed framework is capable of producing reasonable accurate forecasts for put and call prices.

Keywords: Foreign currency options; implied volatility; optimal volatility; multiplicative error model; GARCH model (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.mfsociety.org/modules/modDashboard/uplo ... m73r01u97jdlff54.pdf
http://www.mfsociety.org/modules/modDashboard/uplo ... ogleScholar/794.html (text/html)

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:mfj:journl:v:13:y:2009:i:3-4:p:189-208

Access Statistics for this article

Multinational Finance Journal is currently edited by Panayiotis C. Andreou

More articles in Multinational Finance Journal from Multinational Finance Journal Contact information at EDIRC.
Bibliographic data for series maintained by Theodossiou Panayiotis ().