A Systematic Approach to Pricing and Hedging of International Derivatives with Interest-Rate Risk
AbstractWe deal with the valuration and hedging of non path-dependent European options on one or several underlyings in a model of an international economy which allows for both interest rate and exchange rate risk. Using martingale theory we provide a unified and easily applicable approach to pricing and hedging Black-Scholes type options on stocks, bonds, forwards. futures and exchange rates. We also cover the pricing and hedging of options to exchange two Black-Scholes type options for one another. The contigent claims may pay off in arbitrary currencies.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 306.
Date of creation: 1995
Date of revision: Jun 1996
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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de
Arbitrage; interest rate risk; exchange rate risk; option pricing; hedging;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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- Amin, Kaushik I. & Jarrow, Robert A., 1991. "Pricing foreign currency options under stochastic interest rates," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 310-329, September.
- Orlin J. Grabbe, . "The Pricing of Call and Put Options on Foreign Exchange," Rodney L. White Center for Financial Research Working Papers 06-83, Wharton School Rodney L. White Center for Financial Research.
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