Notation and Acronyms
• St : spot price of the exchange rate at time t
• F (t , T ) : forward price of the exchange rate at time t for a contract expiring at time T
• rd(t ),
: domestic spot rate at time t . It may be continuous, simple or annual compounded according to the context
: domestic spot rate at time t . It may be continuous, simple or annual compounded according to the context• rf(t),
: foreign spot rate at time t . It may be continuous, simple or annual compounded according to the context
: foreign spot rate at time t . It may be continuous, simple or annual compounded according to the context• Pd(t, T) =
: domestic zero-coupon bond price expiring at time T prevailing at time t
: domestic zero-coupon bond price expiring at time T prevailing at time t • Pf(t,T) =
: foreign zero-coupon bond price expiring at time T prevailing at time t
: foreign zero-coupon bond price expiring at time T prevailing at time t • Dd (t ) =
=
: domestic deposit (bank account) accruing interest at the domestic rate r d with initial value in domestic currency units Dd (0) = 1
=: domestic deposit (bank account) accruing interest at the domestic rate r d with initial value in domestic currency units Dd (0) = 1• Df (t ) =
=: foreign deposit (bank account) accruing interest at the foreign rate r f with ...
=: foreign deposit (bank account) accruing interest at the foreign rate r f with ...Get FX Options and Smile Risk now with the O’Reilly learning platform.
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