SFB 303 Discussion Paper No. B-306
Author:
Frey, Rüdiger, and Daniel Sommer
Title: A Systematic Approach to Pricing and Hedging of International Derivatives with
Interest-Rate Risk
Abstract: We deal with the valuration and
hedging of non path-dependent European options on one or several underlyings
in a model of an international economy which allows for both interest rate
and exchange rate risk. Using martingale theory we provide a unified and
easily applicable approach to pricing and hedging Black-Scholes type options
on stocks, bonds, forwards. futures and exchange rates. We also cover the
pricing and hedging of options to exchange two Black-Scholes type options
for one another. The contigent claims may pay off in arbitrary currencies.
Keywords: arbitrage, interest rate risk, exchange rate risk, option pricing, hedging
JEL-Classification-Number: G12, G13, G15
Creation-Date:
June 1996 (revised version)
URL: ../1996/b/bonnsfb306.pdf
17.02.1998, © Webmaster
