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- Publisher
- de Gruyter
- Copyright
- Copyright © 2016 by the
- ISSN
- 1081-1826
- eISSN
- 1558-3708
- DOI
- 10.1515/snde-2015-0001
- Publisher site
- See Article on Publisher Site
Abstract
Abstract (Bakshi, G., and Z. Chen. 1997. “Equilibrium Valuation of Foreign Exchange Claims.” Journal of Finance 52: 799–826) studied equilibrium valuation for foreign exchange claims in the setting of the two-country Lucas-type economy. In Bakshi and Chen (1997) , they assumed the money supplies follow two-factor stochastic volatility processes. Based on their model, we add two independent Poisson-type jumps, respectively into the process of money supply in each country. By solving a partial integro-differential equation (PIDE) for currency options, we get closed-form solutions of call currency option prices. Our model is a generalization of Bakshi and Chen (1997) , and can contain a class of stochastic-volatility jump-diffusion (SVJD) models as special cases.
Journal
Studies in Nonlinear Dynamics & Econometrics – de Gruyter
Published: Apr 1, 2016