Empirical test of the currency option pricing model

KAMIL A. A., Jiun L. Y.

WSEAS Transactions on Mathematics, cilt.4, sa.4, ss.362-367, 2005 (Scopus) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 4 Sayı: 4
  • Basım Tarihi: 2005
  • Dergi Adı: WSEAS Transactions on Mathematics
  • Derginin Tarandığı İndeksler: Scopus
  • Sayfa Sayıları: ss.362-367
  • Anahtar Kelimeler: American/European call option, Binomial Option Pricing model, Black Scholes Model, Currency option, Dynamic programming
  • İstanbul Gelişim Üniversitesi Adresli: Hayır

Özet

This paper analyzes the theoretical value of American and European - style call (GBP call against MYR) on an underlying asset with amount of 1 units of sterling (GBP). Besides that, the marginal effects of the six variables are testing for its contributions on American-style call premium. Binomial Option Pricing model, of Cox, Ross, and Rubinstein (1979), are applied to measure both style of currency options. We find that the call premiums of American option tend to have higher value compare with the European option. In addition, the spot exchange rate, domestic interest rate, time to maturity and volatility have proven of its positive relationship to the American call premium.