search query: @indexterm CURRENCY OPTIONS / total: 27
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| Author: | Sorensen, C. |
| Title: | An equilibrium approach to pricing foreign currency options |
| Journal: | European Financial Management
1997 : MAR, VOL. 3:1, p. 63-84 |
| Index terms: | PRICING CURRENCY OPTIONS EUROPE |
| Language: | eng |
| Abstract: | The paper presents a modified version of the German-Kohlhagen formula for pricing European currency options. The equilibrium approach deviates from the no-arbitrage approach by allowing domestic and foreign interest rates and their dynamics to be determined endogenously in the model. By using the relations between exchange rate dynamics and the dynamics of interest rates, the author provides a new characterisation of the relevant volatilities for European currency option pricing. |
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