The Pricing of Foreign Currency Futures Options

Chang Mo Ahn ()
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Chang Mo Ahn: Sejong University

Yale School of Management Working Papers from Yale School of Management

Abstract: We derive semi-closed form solutions for the forward and futures exchange rates, European foreign currency options, currency forward options, and currency futures options when the domestic and foreign interest rate movements follow mean reverting diffusion processes. These solutions are consistent with the Black-Scholes option formula so that they can be easily applied. The impact of interest rate uncertainty on theoretical prices of currency futures options is too significant to be neglected.

JEL-codes: G12 G13 G15 (search for similar items in EconPapers)
Date: 1996-12-19
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:ysm52

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