Content of present website is being moved to www.lukoe.com/finance . Registration of www.opentradingsystem.com will be discontinued on 2020-08-14.
Quantitative Analysis
Parallel Processing
Numerical Analysis
C++ Multithreading
Python for Excel
Python Utilities
Services
Author
Printable PDF file
I. Basic math.
II. Pricing and Hedging.
1. Basics of derivative pricing I.
2. Change of numeraire.
3. Basics of derivative pricing II.
4. Market model.
5. Currency Exchange.
A. Change of numeraire in currency markets.
B. Invariant form of SDE transformation formula.
C. Delta hedging in currency markets.
D. Example: forward contract to purchase foreign stock for domestic currency.
E. Example: forward currency exchange contract.
F. Example: quanto forward contract.
G. Example: quanto caplet.
H. Example: quanto fixed-for-floating swap.
6. Credit risk.
7. Incomplete markets.
III. Explicit techniques.
IV. Data Analysis.
V. Implementation tools.
VI. Basic Math II.
VII. Implementation tools II.
VIII. Bibliography
Notation. Index. Contents.

Currency Exchange.


e will be considering USD and GBP markets equipped with LIBOR prices and spot riskless rates. There is currency exchange market with quotes on spot exchange rate and forward exchange agreements. We already saw how to construct market models for each of the markets and price fixed income derivatives. The present chapter treats pricing of derivatives dependent on both markets.

We will derive SDE for exchange rate, show how to change probability measure from one market to another and apply these concepts to pricing of some cross currency products.

The reference is [Mercurio] .




A. Change of numeraire in currency markets.
B. Invariant form of SDE transformation formula.
C. Delta hedging in currency markets.
D. Example: forward contract to purchase foreign stock for domestic currency.
E. Example: forward currency exchange contract.
F. Example: quanto forward contract.
G. Example: quanto caplet.
H. Example: quanto fixed-for-floating swap.

Notation. Index. Contents.


















Copyright 2007