Abstract
We consider models for the valuation of derivative securities that depend on foreign exchange rates. We derive partial differential equations for option prices in an arbitrage-free market with stochastic volatility. By use of standard techniques, and under the assumption of fast mean reversion for the volatility, these equations can be solved asymptotically. The analysis goes further to consider specific examples for a number of options, and to a considerable degree of complexity.
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More From: International Journal of Theoretical and Applied Finance
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