IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v06y2003i03ns021902490300189x.html
   My bibliography  Save this article

Valuation And Optimal Exercise Time For The Banxico Put Option

Author

Listed:
  • BEGOÑNA FERNÁNDEZ FERNÁNDEZ

    (Facultad de Ciencias, Universidad Nacional Autónoma de México, Circuito Exterior, CV, México, 04510, D. F., México)

  • PATRICIA SAAVEDRA BARRERA

    (Departamento de Matematicas, Universidad Autónoma Metropolitana, Unidad Iztapalapa, Apartado Postal 55-534, México 09340, D. F., México)

Abstract

Since 1996, the Central Bank of México issues a put option in order to buy American Dollars as a way of increasing its international reserves. This is an exotic option that gives the right to the Mexican banks to sell this currency to the Central Bank at the price of the day before the date of exercise. The option has a maturity of one month and can be exercised on any day during this period, subject to an additional condition that depends on the average price of the Dollar during the previous 20 days. In this work we study the valuation and the optimal time of exercise of this option under the Binomial and the Black–Scholes Models. The optimal time of exercise is found for the Binomial model and a rule of exercise is proposed for the Black–Scholes Model. Numerical results are included to illustrate the performance of this rule of exercise.

Suggested Citation

  • Begoñna Fernández Fernández & Patricia Saavedra Barrera, 2003. "Valuation And Optimal Exercise Time For The Banxico Put Option," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 257-275.
    • Handle: RePEc:wsi:ijtafx:v:06:y:2003:i:03:n:s021902490300189x
    DOI: 10.1142/S021902490300189X
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S021902490300189X
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S021902490300189X?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Peter G Zhang, 1998. "Exotic Options:A Guide to Second Generation Options," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 3800, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter Buchen & Otto Konstandatos, 2005. "A New Method Of Pricing Lookback Options," Mathematical Finance, Wiley Blackwell, vol. 15(2), pages 245-259, April.
    2. Hiroaki Hata & Nien-Lin Liu & Kazuhiro Yasuda, 2022. "Expressions of forward starting option price in Hull–White stochastic volatility model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 101-135, June.
    3. Darae Jeong & Minhyun Yoo & Junseok Kim, 2018. "Finite Difference Method for the Black–Scholes Equation Without Boundary Conditions," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 961-972, April.
    4. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    5. Pradipkumar Ramanlal, 2000. "Software Review," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 23(3), pages 393-394, September.
    6. Mahayni, Antje & Schlögl, Erik, 2003. "The Risk Management of Minimum Return Guarantees," Bonn Econ Discussion Papers 18/2003, University of Bonn, Bonn Graduate School of Economics (BGSE).
    7. Adam Maung & Ken Foster, 2002. "Capital Investment under Alternative Marketing Scenarios in the Hog Industry: A Real Option Approach," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 50(3), pages 223-235, November.
    8. Alex Garivaltis, 2019. "Cover's Rebalancing Option With Discrete Hindsight Optimization," Papers 1903.00829, arXiv.org, revised Oct 2022.
    9. Chaeyoung Lee & Soobin Kwak & Youngjin Hwang & Junseok Kim, 2023. "Accurate and Efficient Finite Difference Method for the Black–Scholes Model with No Far-Field Boundary Conditions," Computational Economics, Springer;Society for Computational Economics, vol. 61(3), pages 1207-1224, March.
    10. Thomas Gerstner & Bastian Harrach & Daniel Roth, 2018. "Monte Carlo pathwise sensitivities for barrier options," Papers 1804.03975, arXiv.org, revised Apr 2019.
    11. Gao, Rong & Wu, Wei & Lang, Chao & Lang, Liying, 2020. "Geometric Asian barrier option pricing formulas of uncertain stock model," Chaos, Solitons & Fractals, Elsevier, vol. 140(C).
    12. Guha, R. & Sbuelz, A., 2003. "Structural RFV : Recovery Form and Defaultable Debt Analysis," Other publications TiSEM 841ad1ef-22f2-4ea8-b19b-5, Tilburg University, School of Economics and Management.
    13. Guha, R. & Sbuelz, A., 2003. "Structural RFV : Recovery Form and Defaultable Debt Analysis," Discussion Paper 2003-37, Tilburg University, Center for Economic Research.
    14. Detlef Seese & Christof Weinhardt & Frank Schlottmann (ed.), 2008. "Handbook on Information Technology in Finance," International Handbooks on Information Systems, Springer, number 978-3-540-49487-4, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:06:y:2003:i:03:n:s021902490300189x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.