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An extended model of currency options applicable as policy tool for central banks with inflation targeting and dollarized economies

Luis-Felipe Arizmendi

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this paper is to provide a new set of tools for policy makers at central banks. Based on the Garman-Kohlhagen formula for currency options, this research extends it with the Taylor-rule expression used for inflation targeting, thus obtaining the corresponding Call and Put options and higher-degree partial derivatives known as "Greeks" for key variables such as the policy target domestic interest rate and the output gap.

Keywords: Inflation Targeting; Central bank policies; Exchange rates; Currency options. (search for similar items in EconPapers)
JEL-codes: E4 E44 E58 F31 G13 (search for similar items in EconPapers)
Date: 2013-03-05, Revised 2013-04-15
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published in Theoretical Economics Letters June.3(2013): pp. 164-167

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