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Graduate School of Ajou University Department of Financial Engineering 3. Theses(Master)

확률적 이자율 모형을 이용한 환율 관련 파생상품의 가치평가

Alternative Title: Pricing of a foreign equity call struck in foreign currency option with Stochastic interest rate

Alternative Abstract: In financial engineering, it is important to find a closed form formula of financial derivatives. However, many of the financial products do not have a closed form formula. Reiner has explained how to adopt Black-Scholes, and furthermore, introduced a method to solve four options related to the exchange rate. In this paper, we study a foreign equity call struck in foreign currency that is one of the four. To price the option, we use a num\'eraire and a measure change. We also solve the option under a stochastic interest rate. By using the two methods, we derive interesting two results: Firstly, a foreign equity call struck in foreign currency(in domestic) is accomplished by the multiplication of an exchange rate and an European call option(in foreign). Secondly, if stock price(in domestic) is equal to the multiplication of stock price(in foreign) and exchange rate, and also exercise price(in domestic) is equal to the multiplication of exercise price(in foreign) and exchange rate, a foreign equity call struck in foreign currency(in domestic) is accomplished by the multiplication of an exchange rate and a foreign equity call struck in foreign currency(in foreign). We found that this option simply is accomplished in only an exchange rate.

Appears in Collections:: Graduate School of Ajou University > Department of Financial Engineering > 3. Theses(Master)

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