|Title:||Option prices and risk-neutral densities for currency cross rates||Authors:||Taylor S.J.
|Issue Date:||2010||Journal Volume:||30||Journal Issue:||4||Start page/Pages:||324-360||Source:||Journal of Futures Markets||Abstract:||
The theoretical relationship between the risk-neutral density (RND) of the euro/pound cross rate and the bivariate RND of the dollar/euro and the dollar/pound rates is derived; the required bivariate RND is defined by the dollar-rate marginal RNDs and a copula function. The cross-rate RND can be used by banks, international businesses, and central bankers to assess market expectations, to measure risks, and to value options, without relying on over-the-counter markets, which may be either non-existent or illiquid. Empirical comparisons are made between cross-rate RNDs estimated from several data sets. Five one-parameter copula functions are evaluated and it is found that the Gaussian copula is the only oneparameter copula function that is ranked highly in all of the comparisons we have made. ? 2009 Wiley Periodicals, Inc.
|Appears in Collections:||財務金融學系|
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.