
Let's start with six of the most common myths about the benefits of FX options to the international corporation - myths that damage shareholder values. Historically, the currency derivative pricing literature and the macroeconomics literature on FX determination have progressed separately. In this Chapter I argue the joint study of these two strands of literature and give an overview of FX option pricing concepts and terminology crucial for this interdisciplinary study.

I also explain the three sources of information about market expectations and perception of risk that can be extracted from FX option prices and review empirical methods for extracting option-implied densities of future exchange rates. Contract vanzare cumparare auto series#Īs an illustration, I conclude the Chapter by investigating time series dynamics of option-implied measures of FX risk vis-a-vis market events and US government policy actions during the period January 2007 to December 2008. Chapter 2: This Chapter proposes using foreign exchange (FX) options with different strike prices and maturities to capture both FX expectations and risks.

We show that exchange rate movements, which are notoriously difficult to model empirically, are well-explained by the term structures of forward premia and options-based measures of FX expectations and risk. Contract vanzare cumparare auto series#.
