Pricing Foreign Index Contingent Claims

Dravid, Ajay; Richardson, Matthew; Sun, Tong-sheng

doi:10.3905/jod.1993.407872

Cited by 37 publications

(2 citation statements)

References 6 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Before pricing foreign equity options, we introduce the distribution function which is necessary to the following discussion. 2) where f N AL and F N AL are the probability density function and distribution function respectively, and Φ(z) denotes the distribution function of standard normal distribution, and…”

Section: Model and Analysis Of Jumpsmentioning

confidence: 99%

“…Many previous studies dealing with the foreign equity options usually based on the Black-Scholes framework and model the dynamics of equity prices and foreign exchange rates with Brownian motions, for example, Dravid et al [2], Reiner [5], Ho et al [15] and Kowk and Wong [18]. In this specification, there are tail-fatness and asymmetry in the return distribution.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Foreign equity option pricing under bivariate time-varying coefficient jump-diffusion model

Zhang¹,

Wang²

2018

ijcms

View full text Add to dashboard Cite

This paper is dedicated to the study of the foreign equity option pricing under bivariate time-varying coefficient jump-diffusion model. Economic variables are not carved on tablets of stone, they change over time. Hence we allow the returns and variance of the equity price and foreign exchange rate are time-varying functions. Foreign equity options (quanto options) have become more and more popular in international financial markets, where the payoff depending on the equity price in one currency but the actual payoff is done in another currency. In this paper, we use a bivariate Bernoulli distribution and a bivariate Laplace distribution to model the jump indicators and jump sizes, respectively. The distribution of return is analysed by the Itô formula and normal asymmetric Laplace distribution. The pricing formula of foreign equity call option is proposed which is based on domestic currency under the risk-neutral measure. The numerical results show that the jump correlation is significant to the foreign equity option prices.

show abstract

Section: Model and Analysis Of Jumpsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Foreign equity option pricing under bivariate time-varying coefficient jump-diffusion model

Zhang¹,

Wang²

2018

ijcms

View full text Add to dashboard Cite

show abstract

Bibliography

2011

Options on Foreign Exchange

View full text Add to dashboard Cite

Pricing foreign equity options under Lévy processes

Huang

Hung

2005

J. Fut. Mark.

View full text Add to dashboard Cite

This article investigates the valuation of a foreign equity option whose value depends on the exchange rate and foreign equity prices. Assuming that these underlying price processes are correlated and driven by a multidimensional Lévy process, a method suitable for solving the complex valuation problem is developed. First, to reduce the number of dimensions of the problem, the probability measure is changed to embed some dimensions of the Lévy process into the pricing measure. Second, to simplify the integral complexity of the discounted terminal payoff, the valuation problem is transformed to Fourier space. The main contribution of this study is that by combining these two methods, the multivariate valuation problem is significantly simplified, and very accurate results are obtained relatively quickly. This powerful method can also be applied to other multivariate pricing problems involving Lévy processes.

show abstract

Pricing Foreign Index Contingent Claims

Abstract: AJAY DRAVID is a professor at The Wharton School a t the University of Pennsylvania.

Cited by 37 publications

References 6 publications

Foreign equity option pricing under bivariate time-varying coefficient jump-diffusion model

Foreign equity option pricing under bivariate time-varying coefficient jump-diffusion model

Bibliography

Pricing foreign equity options under Lévy processes

Contact Info

Product

Resources

About