Dissertation > Economic > Fiscal, monetary > Finance, banking > Finance, banking theory > Exchange

The Pricing of Quanto Options Under the Fixed Exchange Rate System with Delayed Response

Author TanJie
Tutor LiYaQiong
School Hunan University
Course Applied Mathematics
Keywords time delay quanto options transaction costs Leland transaction cost
CLC F830.7
Type Master's thesis
Year 2012
Downloads 6
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The option pricing models of Black-Scholes are usually assumed that the stock price volatility is constant. However, the empirical researches are found that the volatility of stock price is not a constant and depend on the past of stock price. In the paper, using Arriojas’s method to research option price with delay response, and using the principle of no-arbitrage hedge, equivalent martingale measure exchange, the dual-currency option price is studied extended under a fixed exchange rate system.Firstly, in this paper, based on the Arriojas’s the European call option pricing with delay, we discuss the pricing of a European call option to pay the transaction costs. Secondly, under Arriojas’s the research framework with time delay response and payment continuous dividend, we discuss quanto European options pricing problems with time delay response. Finally, we study quanto European options pricing with payment transaction costs and time delay response.We mainly compete following work:1. We study the quanto European options pricing with time delay response and payment continuous dividend, using the method of Leland payment transaction costs. The closed form solutions of the quanto European options are achieved.2. We study the quanto options pricing with payment continuous dividend and transaction costs, based on the strike price of foreign currency and domestic prices respectively. The closed form solutions of the quanto option prices are achieved.Through the researches, we find:1. Under payment transaction cost, quanto option pricing formula is similar to the formula of Black-Scholes with time delay response.However, the fluctuation rate need to be adjusted.2. Whether payment or not payment transaction costs, the quanto European option prices depend on the past stock price with time delay response.

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