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Pricing and hedging problem of foreign currency option with higher borrowing rate

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Abstract

The pricing and hedging problem of foreign currency option with higher borrowing rate is discussed. The method to obtain the price and hedging portfolio of currency option is based on backward stochastic differential equations (BSDE for short) theory and Malliavin calculus technique. The sensitivity of the model parameters is also considered and some numerical simulations are given to illustrate our conclusion.

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Authors and Affiliations

  1. Department of Mathematics, China University of Mining Technology, Beijing, 100083, China

    Li Chen

  2. School of Mathematics, Shandong University, Jinan, 250100, China

    Zongyuan Huang & Zhen Wu

Authors
  1. Li Chen
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  2. Zongyuan Huang
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  3. Zhen Wu
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Corresponding author

Correspondence to Li Chen.

Additional information

This paper is supported by the National Nature Science Foundation of China (11221061, 61174092, 11126214, 11126208), the National Science Fund for Distinguished Young Scholars of China (11125102), and the Fundamental Research Funds for the Central Universities (2010QS05).

This paper was recommended for publication by Editor ZOU Guohua.

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Chen, L., Huang, Z. & Wu, Z. Pricing and hedging problem of foreign currency option with higher borrowing rate. J Syst Sci Complex 26, 407–418 (2013). https://doi.org/10.1007/s11424-013-1018-8

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  • DOI: https://doi.org/10.1007/s11424-013-1018-8

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