Foreign Exchange Option Pricing Empirical Studies In The Chinese Market

Along with the constantly increase of foreign currency deposit ,the low interest rate in our country and the intrinsic risk of foreign exchange, the people holding foreign currency had not been satisfied with the simple investment channels ,such as the ordinary bank deposit and the real time exchange. They hoped the market could provide some new investment channels. Bank of China introduced the foreign currency option products of Liangdebao and Qiquanbao in succession from the year 2002 to the year 2003, which meet the people's requirement. The foreign currency option products have suffered the extensive concern of the market from the time when they appeared. This is a great innovation to help our country's foreign exchange market to become more perfect.This thesis consists of two parts. The one is about the pricing of the foreign currency option. The other is about the empirical research of Chinese foreign currency option market.In the first part, we firstly introduce the conception of foreign currency option and the development of its market (Chapter one). Then we describe the general theory of option pricing, elucidating the thought and method of pricing through the deducing of the Black-Scholes model and binomial tree model (Chapter two). Finally, we deduced out the formula of the European foreign currency option's price on the basic of the Black-Scholes model and give out the method of pricing about the American foreign currency option by the theory of the binomial tree model (Chapter three).In the second part (Chapter four), we choose the option products of Liangdebao and Qiquanbao of Bank of China Shanghai Branch as the empirical research objects. We firstly introduced the two products in detail. Then we calculate out the theoretic price range of 22 trading days from 2004-1-5 to 2004-2-16 about several products by European option pricing model, and we compare the theoretic prices with the market prices. Finally, we analyze the real income of the 22 trading days due to the foreign exchange at maturity.Moreover, this thesis research into the risk management of option including the foreign currency option in the final chapter (Chapter five).