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.
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.
| Original language | English |
|---|---|
| Pages (from-to) | 295 - 317 |
| Journal | Applied Mathematical Finance |
| Volume | 3 |
| Publication status | Published - 1 May 1996 |