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Pricing Multi-Asset Cross Currency Options

  • Kenichiro Shiraya

    (Graduate School of Economics, University of Tokyo)

  • Akihiko Takahashi

    (Graduate School of Economics, University of Tokyo)

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    This paper develops a general pricing method for multi-asset cross currency options, whose underlying asset consists of multiple different assets, and the evaluation currency is different from the ones used in the most liquid market of each asset; the examples include cross currency options, cross currency basket options and cross currency average options. Moreover, in practice, fast calibration is necessary in the option markets relevant for the underlying assets and the currency, which is also achieved in this paper. Furthermore, we investigate the implied correlations in the cross currency markets on the dates before and after the events, Lehman Shock and Tohoku Earthquake.

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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/288.pdf
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    Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-276.

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    Length: 41 pages
    Date of creation: Mar 2012
    Date of revision:
    Handle: RePEc:cfi:fseres:cf276
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    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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