Abstract
This paper examines the sensitivity of the values of foreign currency American call options to the domestic and foreign term structures of interest rates. Pricing performances of currency option models are compared with and without the term structure effects. It is shown that there exist significant pricing biases if flat yield curves are assumed, and that different shapes of domestic and foreign yield curves can have major impacts on currency option prices.
Original language | English |
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Pages (from-to) | 41-53 |
Number of pages | 13 |
Journal | Journal of Banking and Finance |
Volume | 14 |
Issue number | 1 |
DOIs | |
State | Published - 1 Jan 1990 |
Externally published | Yes |
ASJC Scopus subject areas
- Finance
- Economics and Econometrics