Quanto Interest-Rate Exchange Options in a Cross-Currency LIBOR Market Model

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Title:	Quanto Interest-Rate Exchange Options in a Cross-Currency LIBOR Market Model
Authors:	Tsung-Yu Hsieh;Chi-Hsun Chou;Son-Nan Chen
Contributors:	淡江大學財務金融學系
Keywords:	Quanto;Interest-rate;Exchange options;Exchange rate;Cross-currency;LIBOR market model
Date:	2015
Issue Date:	2014-10-31 13:22:24 (UTC+8)
Publisher:	Asian Economic and Social Society
Abstract:	The purpose of this paper is to price quanto interest-rate exchange options (QIREOs) based on a practical and easy-to-use interest-rate model. According to the payoff structure of QIREOs, the cross-currency LIBOR market model (CLMM), in which the initial LIBOR market model (LMM) is extended from a single-currency economy to a cross-currency economy, is suitable to be adopted to price four different types of quanto interest-rate exchange options in this article. Our pricing formulae represent the general formulae in the framework of the CLMM. Hedging strategies are also provided for practical implementation.
Relation:	Asian Economic and Financial Review 5(5), p.816-830
DOI:	10.18488/journal.aefr/2015.5.5/102.5.816.830
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Journal Article

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