Abstract
Lecture notes for a short course on FX option valuation. Includes: - Mathematical framework for FX valuation - Handling the smile and term structure for vanilla options (calls and puts): --- Interpolation issues and techniques --- Handling business time --- Handling market conventions - Pricing of barrier options: --- Attention to the joints along with the marginals --- Barrier option pricing models ------ Black-Scholes ------ Vanna-volga ------ Semi-static hedging ------ Stochastic volatility - the Heston model ------ Local volatility ------ Stochastic local volatility ------ Random risk reversal model - Hedging performance as a measure of model quality.
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