A Systematic Approach to Pricing and Hedging of International Derivatives with Interest Rate Risk

Rüdiger Frey, Daniel Sommer

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftForschungBegutachtung

Abstract

The paper deals with the valuation and the hedging of non path-dependent European
options on one or several underlying assets in a model of an international economy
allowing for both, interest rate risk and exchange rate risk. Using martingale theory
and in particular the change of numeraire technique we provide a unified and easily
applicable approach to pricing and hedging exchange options on stocks, bonds, futures,
interest rates and exchange rates. We also cover the pricing and hedging of compound
exchange options.
OriginalspracheEnglisch
Seiten (von - bis)295 - 317
FachzeitschriftApplied Mathematical Finance
Jahrgang3
PublikationsstatusVeröffentlicht - 1 Mai 1996

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