Currency options and exchange rate economics / editor, Zhaohui Chen.

Format:

Book

Contributor:

Chen, Zhaohui.

Language:

English

Subjects (All):

Options (Finance).

Foreign exchange rates.

Physical Description:

1 online resource (218 p.)

Place of Publication:

Singapore ; River Edge, N.J. : World Scientific, c1998.

Language Note:

English

Summary:

This volume is a collection of classical and recent empirical studies of currency options and their implications for issues of exchange rate economics, such as exchange rate risk premium, volatility, market expectations, and credibility of exchange rate regimes. It contains applications on how to extract useful information from option market data for financial forecasting policy purposes. The subjects are discussed in a self-contained, user-friendly format, with introductory chapters on currency option theory and currency option markets.The book can be used as supplementary reading for graduat

Contents:

Preface; Contents; PART I INTRODUCTION; CHAPTER 1 LEARNING FROM CURRENCY OPTION MARKETS: AN OVERVIEW; CHAPTER 2 AN INTRODUCTION TO OPTION PRICING THEORY; 2.1 Introduction; 2.2 The Black-Scholes Option Pricing Model; 2.3 Risk-Neutral Valuation Relationship (RNVR); 2.3.1 RNVR and Martingales; 2.3.2 Compounding and discounting factors; 2.3.3 Deriving the Black-Scholes formula using RNVR; 2.4 Equity Options with Dividend and Foreign Currency Options; 2.4.1 Equity options with dividend; 2.4-2 Foreign currency options; 2.5 Futures Options; 2.6 Put-Call Parity; 2.7 Modern Greeks

2.8 Traditional Greeks2.8.1 Delta (δ); 2.8.2 Vega; 2.8.3 Theta (θ); 2.8.4 Rho (ρ); 2.8.5 Lamda (λ); 2.8.6 Gamma (γ); 2.9 Implied Volatility; 2.10 Summary; References; CHAPTER 3 AN INTRODUCTION TO CURRENCY OPTION MARKETS; 3.1 Introduction; 3.2 Centralised Exchanges and Over-the-Counter Markets; 3.3 The Black-Scholes Functions; 3.4 The Price Quotation Conventions of the Over-the-Counter Markets; 3.5 The Volatility Smile: Straddles, Strangles and Risk Reversals; 3.6 Conclusions; References; PART II APPLICATIONS; CHAPTER 4 THE IMPLIED VOLATILITY IN PRICES OF FOREIGN CURRENCY OPTIONS

4.1 Introduction4.2 Option Pricing Models; 4.2.1 Implied volatilities; 4.2.2 An analysis of implied volatilities in models with stochastic volatility; 4.3 A Review of the Empirical Research on Implied Volatilities; 4.3.1 A review of the empirical research on stock options; 4.3.2 The empirical research on foreign currency options; 4.4 Summary and Discussion of Issues for Future Research; Acknowledgements; References; CHAPTER 5 LEARNING FROM THE TERM STRUCTURE OF IMPLIED VOLATILITY IN FOREIGN EXCHANGE OPTIONS*; 5.1 Introduction

5.2 Stochastic Volatility and the Use of Black-Scholes Volatility Quotes5.3 Data and Descriptive Statistics; 5.4 Testing the Expectations Hypothesis; 5.5 Overreactions in Foreign Exchange Options; 5.6 Out-of-Sample Forecasts of Future Implied Volatility; 5.7 Conclusion; References; CHAPTER 6 OPTIONS AND THE CURRENCY RISK PREMIUM; 6.1 Introduction; 6.2 Risk Premium Theory and Past Empirical Results; 6.2.1 The simple efficiency hypothesis; 6.2.2 A portfolio balance model of the risk premium; 6.3 The Option Model and Data Used; 6.3.1 The binomial pricing model

6.3.2 Inputs for the valuation model6.4 Empirical Results; 6.4.1 Test of simple efficiency; 6.4.2 Simple efficiency: adding some structure; 6.4.3 Test of the portfolio balance model; 6.4.4 A final note regarding sterilised intervention; 6.5 Conclusions; Data Appendix; References; CHAPTER 7 OPTION PRICES AND THE PROBABILITY DISTRIBUTION OF EXCHANGE RATES; 7.1 Introduction; 7.2 Option Prices and the Probability Distribution of Future Asset Prices; 7.3 Constructing Elementary Contingent Claims from Option Prices; 7.4. The Distributional Hypothesis of the Black-Scholes Model

7.5 Kurtosis, Skew and Option Prices

Notes:

Includes bibliographical references and index.

Includes bibliographical references and indexes.

ISBN:

9789812812551

9812812555