Abstract
This paper provides a short introduction to the topic of target zone exchange rate option pricing. Models covered include: Black-Scholes equation with derivation, European Call on a stock option, Garman-Kohlhagen model for an option on a free-floating exchange rate, Dumas Jennergren and Naslund model for an exchange rate option within a fully credible target zone and a discussion of the relationship between empirical option pricing data and partial target zone credibility.
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