Exchange Rate Economic Exposure under Collusive Pricing and Hedging Using Asian Currency Options
AbstractThis paper provides a financial engineering exercise for a specific form of exchange rate economic (competitiveness) exposure and discusses the hedging solution for this exposure. Specifically, it analyses exposure in a market where international competitors follow a type of collusive pricing behaviour, and derives the risk profile of this exposure. It then proposes a hedging scenario based on a portfolio of Asian Currency Options consisting of a 1:1 Bull Cali Spread and a short put. The practical implications of this paper are of interest to currency option traders who can launch new hedging applications of currency option portfolios, and to exposed firms facing this particular form of economic exposure.
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Bibliographic InfoArticle provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.
Volume (Year): 53 (2000)
Issue (Month): 1 ()
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Collusive Pricing; Asian Options; Bull Cali Spreads; Hedging;
Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F39 - International Economics - - International Finance - - - Other
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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- Bartram, Sohnke M., 2004.
"Linear and nonlinear foreign exchange rate exposures of German nonfinancial corporations,"
Journal of International Money and Finance,
Elsevier, vol. 23(4), pages 673-699, June.
- Sohnke M. Bartram, 2002. "Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations," Finance 0207001, EconWPA.
- Bartram, Söhnke M., 2004. "The Use of Options in Corporate Risk Management," MPRA Paper 6663, University Library of Munich, Germany.
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