Cross currency option pricing

Document Type

Article

Publication Date

1-1-1997

Abstract

The authors have shown that the cross-currency option analyzed by Rumsey (1991) is equivalent to an option with a stochastic exercise price. Thus, any valuation model should recognize this characteristic. It is also shown that a replicating portfolio of puts and calls matches the payoff of a cross-currency option regardless of whether both options expire out-of-the-money or one expires in-the-money while the other expires worthless. © 1997 JAI Press Inc. All rights of reproduction in any form reserved.

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