ADMS 1000 Lecture Notes - Lecture 22: Option Style, Valuation Of Options, Call Option

• School: York University
• Department: Administrative Studies
• Course: ADMS 1000
• Professor: Alan Shapiro

Document Summary

Pricing currency put options according to put-call parity. Bodurtha and courtadon found that the application of an american currency options pricing model does not improve predictive accuracy. Meanwhile, the foreign currency that was purchased can be deposited to earn the foreign rate r*. Regardless of the scenario for the path of the currency"s exchange rate movement over the life of the option, the arbitrage will result in a profit. The application of an american currency options pricing model does not improve predictive accuracy. Their average percentage pricing error was 7. 07 percent for all sample call options when using the american model. Given all other parameters, the currency option pricing model can be used to impute the standard deviation . This implied parameter represents the option"s market assessment of currency volatility over the life of the option. Given the premium of a european call option (called c)