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R: Data Analysis and Visualization by Ágnes Vidovics-Dancs, Kata Váradi, Tamás Vadász, Ágnes Tuza, Balázs Árpád Szucs, Julia Molnár, Péter Medvegyev, Balázs Márkus, István Margitai, Péter Juhász, Dániel Havran, Gergely Gabler, Barbara Dömötör, Gergely Daróczi, Ádám Banai, Milán Badics, Ferenc Illés, Edina Berlinger, Bater Makhabel, Hrishi V. Mittal, Jaynal Abedin, Brett Lantz, Tony Fischetti

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Currency options

European currency options grant the holder the right to buy (call option) or sell (put option) currency at a predetermined exchange rate (strike price or exercise price, X), on a specified date (maturity, T). These financial assets are also called foreign exchange options (or FX options), but to avoid confusion with the term "exchange option", we prefer the "currency option" terminology.

A basic assumption of the original Black-Scholes model (Black and Sholes, 1973, see also Merton, 1973) is that the underlying is a stock that pays no dividend. More generally, the results of the model are held only if the underlying does not grant any kind of yield and does not generate any kind of cost either. However, this assumption might be ...

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