Pricing Currency Options with a Market Model of Interest Rates under Jump-Diffusion Stochastic Volatility Processes of Spot Exchange Rates
AbstractThis paper proposes a pricing method of currency options with a market model of interest rates. Using a simple approximation and a Fourier transform method, we derive a formula of the option pricing under jump-diffusion stochastic volatility processes of spot exchange rates. As an application, we apply the formula to the calibration of volatility smiles in the JPY/USD currency option market. Moreover, using the approximate prices as a control variate, we achieve substantial variance reduction in Monte Carlo simulation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-451.
Date of creation: Dec 2006
Date of revision:
Contact details of provider:
Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).
If references are entirely missing, you can add them using this form.