English, Article edition: FOREIGN EXCHANGE OPTIONS UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES REHEZ AHLIP

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Physical Description
  • article
Language
  • English

Edition details

Title
  • FOREIGN EXCHANGE OPTIONS UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES
Author
  • REHEZ AHLIP
Physical Description
  • article
Notes
  • In this paper, we present a stochastic volatility model with stochastic interest rates in a Foreign Exchange (FX) setting. The instantaneous volatility follows a mean-reverting OrnsteinâUhlenbeck process and is correlated with the exchange rate. The domestic and foreign interest rates are modeled by mean-reverting OrnsteinâUhlenbeck processes. The main result is an analytic formula for the price of a European call on the exchange rate. It is derived using martingale methods in arbitrage pricing of contingent claims and Fourier inversion techniques.
  • Foreign exchange options, OrnsteinâUhlenbeck process, stochastic volatility
  • RePEc:wsi:ijtafx:v:11:y:2008:i:03:p:277-294
Language
  • English
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