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The Pricing of Foreign Currency Futures Options

Author

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  • Chang Mo Ahn

    (Sejong University)

Abstract

We derive semi-closed form solutions for the forward and futures exchange rates, European foreign currency options, currency forward options, and currency futures options when the domestic and foreign interest rate movements follow mean reverting diffusion processes. These solutions are consistent with the Black-Scholes option formula so that they can be easily applied. The impact of interest rate uncertainty on theoretical prices of currency futures options is too significant to be neglected.

Suggested Citation

  • Chang Mo Ahn, 1996. "The Pricing of Foreign Currency Futures Options," Yale School of Management Working Papers ysm52, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm52
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    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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