Stochastic Interest Rates, Transaction Costs and Immunizing Foreign Currency Risk

Raymond Chiang, John Okunev and Mark Tippett

No 58, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Since the deregulation of foreign currency markets in 1973, the volatility of foreign exchange rates has increased substantially. Owing to this increased volatility in exchange rates it has become increasingly important to hedge foreign currency exposure. This paper provides a self-financing hedging strategy which incorporates the use of a synthetic put. Using domestic and foreign bonds to replicate the option payoff, the strategy can work for non-major currencies where there is no exchange traded options. In addition, we develop hedging strategies which allow for transaction costs in the case of stochastic interest rates by extending the Leland model.

Pages: 31 pages
Date: 1996-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as: Chiang, R., Okunev, J. and Tippett, M., 1998, "Stochastic Interest Rates, Transaction Costs and Immunizing Foreign Currency Risk", Journal of Futures Markets, 17(5), pp. 579-598.

Downloads: (external link)
http://www.finance.uts.edu.au/research/wpapers/wp58.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.finance.uts.edu.au:80 (A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.)

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:uts:wpaper:58

Access Statistics for this paper

More papers in Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().