Currency Derivatives

Tomas Björk

in Arbitrage Theory in Continuous Time

Second edition

Published in print March 2004 | ISBN: 9780199271269
Published online October 2005 | e-ISBN: 9780191602849 | DOI:

Series: Oxford Finance Series

Currency Derivatives

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This chapter examines a model which incorporates not only the usual domestic equity market, but also a market for the exchange rate between the domestic currency and a fixed foreign currency, as well as a foreign currency market. Financial derivatives defined in such situations are commonly known as quanto products. It begins with a study of derivatives written directly on the exchange rate X, and then proceeds with the study of pricing (in domestic currency) contracts written on foreign equity. Practice exercises are included.

Keywords: currency derivatives; equity market; exchange rate; domestic currency; foreign currency market; quanto products

Chapter.  6822 words. 

Subjects: Financial Markets

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