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Equity-linked Foreign Exchange Options

Value in Domestic currency

Value in Foreign currency

where

where

p = Value of European call option

c = Value of European put option

S* = Underlying asset price in foreign currency.

X = Currency strike price in domestic currency.

r = Domestic risk free rate.

rf = Foreign risk free rate.

q = Instantaneous proportional dividend payout rate of the underlying asset.

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

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

= Volatility of the underlying asset.

= Volatility of the domestic exchange rate.

= Correlation between asset and the domestic exchange rate.

= Correlation between the asset and domestic exchange rate

T = Time to maturity

 

See Also

oX_EquityLinkedForEx( ) Function

oX_EquityLinkedForEx_Imp( ) Function

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