Economics, Econometrics and Finance
3 years ago

New method revolutionizes pricing foreign exchange options under changing conditions.

arXiv (Cornell University)
Expansion method for pricing foreign exchange options under stochastic volatility and interest rates
Kenji Nagami

Paper Summary

The article introduces a method for pricing foreign exchange options under changing volatility and interest rates. The researchers developed an expansion formula to estimate option prices up to the second order. Their formula was tested against Monte-Carlo simulations and showed similar results to a previous method.

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