Pricing of European currency options considering the dynamic information costs
| dc.contributor.author | Dammak ,W | |
| dc.contributor.author | Hamad ,S.B | |
| dc.contributor.author | De Peretti C | |
| dc.contributor.author | Eleuch H. | |
| dc.date.accessioned | 2024-01-31T07:43:22Z | |
| dc.date.available | 2024-01-31T07:43:22Z | |
| dc.date.issued | 2023-11 | |
| dc.description | Using options for hedging or speculative purposes has gained popularity in recent decades. Consequently, businesses have adopted options to mitigate interest rate risk and minimize price fluctuations in real commodities and securities. Furthermore, options are employed in foreign exchange as a derivative instrument based on a fixed amount of foreign currency. | |
| dc.description.abstract | Dynamic costs arising from the variable impact of information on asset pricing present a challenge for accurate European currency option pricing. The Garman and Kohlhagen model, though influential in the literature, does not adequately account for these costs. This study extends the model by integrating an intensity function into the interest rates to measure dynamic information costs. Inspired by the Beer–Lambert law, the function is applied to a decade-long dataset of daily futures continuous calls on the EUR/USD pair from September 21, 2012, to September 23, 2022. The augmented model reduces pricing errors and manages implied volatility better than the 1983 model, consistent across different categories of maturity and moneyness. Our findings emphasize the need to consider dynamic information costs in asset pricing, demonstrating that their inclusion can significantly enhance the accuracy and reliability of currency option pricing. Keywords :Currency options ,Garman and Kohlhagen's model , Dynamic information costs ,Derivatives ,Market imperfections, Beer–Lambert law | |
| dc.identifier.citation | Dammak, W., Hamad, S. B., de Peretti, C., & Eleuch, H. (2023). Pricing of European currency options considering the dynamic information costs. Global Finance Journal, 58, 100897. | |
| dc.identifier.doi | https://doi.org/10.1016/j.gfj.2023.100897 | |
| dc.identifier.uri | https://dspace.adu.ac.ae/handle/1/557 | |
| dc.language.iso | en | |
| dc.publisher | Elsevier | |
| dc.title | Pricing of European currency options considering the dynamic information costs | |
| dc.type | Article |