Abstract
The chosen final convergence for EMU has been to pre-announce the target convergence rate of ERM central parity. This paper analyses some of the pricing and the arbitrage problems market participants had to face between the FX forward and Vanilla option books. We describe a methodology to price FX option when both a peg and the peg level have been pre-announced. We derive explicit pricing formula for FX options and show how--once a parity is announced--the FX dynamics has a stronger link with the interest rates dynamics than in the normal case.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
