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Foreign Equity Options Struck in Domestic Currency

Option value in domestic currency

where

Option value in foreign currency

where

where

S* = Underlying asset price in foreign currency

X = Delivery price in domestic currency

r = Domestic interest rate

q = Instantaneous proportional dividend payout rate of the underlying asset

E = Spot exchange rate specified in the units of the domestic currency per unit of the foreign currency.

E* = Spot exchange rate specified in the units of the foreign currency per unit of the domestic currency.

= Volatility of the underlying asset

= Volatility of the domestic exchange rate

= Volatility of the foreign exchange rate

= Correlation between the asset and domestic exchange rate

= Correlation between the asset and domestic exchange rate

 

See Also

oX_ForeignEquity( ) Function

oX_ForeignEquity_Imp( ) Function

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