The Foreign Exchange Option Pricing Model Under The Particular Markov Skeleton Process And Its Application

In the recent years, with the development and consummation of the financial market, the investors' contradiction between the expected return rate and the risk becomes more and more intense. Investors expect to avoid the financial risk by the option investments' strategy, and then achieve the tuition of hedging. So how to price the option becomes the key problem. In 1973, F. Black & M. Scholes had published the famous paper —《Option Pricing and The Corporate liability》in which they had successfully solved the pricing problem of European option. So how to simulate the actual operate in financial market via the reasonable option model become the study's mean-stream in the area of financial mathematics. So the main problem we have studied in the paper is how to generalize the Black-Scholes pricing model. And then we have solved the pricing model of foreign exchange option and demonstrated the meaning and the effect of the option investment strategy too.The context as follows: Chapter 1: At first, we have introduced the origin and the purpose of the problem, and the present conditions of the research work, which had been done by foreigners or compatriots. Then we have discussed about the theoretical basis, the research method of our work and the content and the meaning about the problems that we have solved. Chapter 2: On the basis of Markov skeleton process that proposed by Zhenting Hou [1], we have defined a kind of special Markov Skeleton Process. And we have established and solved the model of European foreign exchange option in which the foreign exchange price process obeys the special Markov framework process. The essential difference between the Black-Scholes model and ours is that the underlying asset price process is not a general continuous stochastic process in our model, but a special Markov Skeleton Process. It has taken into account that the underlying assets price process, which is continuous about time but has continuous and discrete changes in space. So our model can explain the abnormal jump of security price affected by uneconomical factors very well. Chapter 3: We have analyzed the actual instance on the basis of the pricing model of foreign exchange option that we have established in chapter 2. We propose the probability of acquiring foreign exchange on the exchange market, while taking care to avoid generating pressure on the exchange rate and to avoid sending signs that could be erroneously interpreted by the financial markets. And then we have given a method that how to price the option and analysis the probability of using the options. At last we have analyzed the sensitivity of the option price when the parameters that contribute to the determination of its price are changing. Chapter 4: Conclusion and Prospects.