Research On Foreign Currency Options Valuation Formula

The foreign currency options is not only a new concept in domestic financial market, but also a very complicated financial derivative instrument, which contains the knowledge of interest rate and exchange rate, and also needs a good command of mathematics and options, in the deduction of the Valuation Formula, we should think greatly of the problems from both the interest rates belonging to the two countries which can be easily solved only by a new way named martingale. This thesis attempts to fully analyze the calculation of premium. First, it introduces the interest rate parity, which is closely related to the foreign currency options. Second is the knowledge of foreign currency options, through which people can know detailedly the principle and the using of the option. Third is the basic theorem and theory of mathematics concerning to the foreign currency options, in which martingale is emphasized. Martingale is the way to transfer the assets from a circumstance full of risks, called P Measure, to a circumstance without risks, called R Measure. This change of the circumstance will largely simplify the deduction of the Valuation Formula. And the following step is to deduce the Valuation Formula of foreign currency options from which 8 parameters are deduced. This thesis generally analyzes the principle and the use of the 8 parameters and presents the strategies to avoid risks individually. In the last, this thesis briefly introduces the beginning and development of foreign currency options in our country, detailedly researches the characteristic of the new instrument, seriously points out the fault of foreign currency options operating in our country. So we have a long way to perfect this new financial instrument. This thesis often discusses the principle associated with examples and graphs, so as to better realize the new financial derivative instrument for the individuals, more accurately judge the foreign currency market for the people in this market. All of these are aiming to a nice wish to perfect our foreign exchange market earlier.This thesis not only fully analyzes the foreign currency options, especially the deduction of the 8 parameters, but also detailedly illustrates its practical operation in the market. It will strongly guide the operation for individuals, and has both the theoretical meaning and practical meaning in developing and perfecting the financial derivative instrument---foreign currency options.