✦ LIBER ✦

On the use of European models to price American options on foreign currency

✍ Scribed by Kuldeep Shastri; Kishore Tandon

Publisher: John Wiley and Sons
Year: 1986
Tongue: English
Weight: 682 KB
Volume: 6
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.3990060109

No coin nor oath required. For personal study only.

✦ Synopsis

ecent theoretical research has developed two valuation models for pricing R options on foreign currency-a European version and a more complex American variant. The purpose of this article is to compare the pricing behavior of the two models. Our simulations show that the European model performs well for call options but is less accurate when used to price put options. This article also develops some implications for the use of European models in the estimation of implied variances.

*To whom all correspondence should be addressed. **We would like to thank an anonymous referee and the editor of the journal for their comments and suggestions. Financial support from the Graduate School of Business, University of Pittsburgh, is gratefully acknowledged. This research was completed when Tandon was visiting at the University of Pittsburgh.

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