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The rationale behind the above formulation of the Vanna-Volga price is that one can extract the smile cost of an exotic option by measuring the smile cost of a portfolio designed to hedge its Vanna and Volga risks. The reason why one chooses the strategies BF and RR to do this is because they are liquid FX instruments and they carry mainly ...
In finance, an exotic option is an option which has features making it more complex than commonly traded vanilla options. Like the more general exotic derivatives they may have several triggers relating to determination of payoff. An exotic option may also include a non-standard underlying instrument, developed for a particular client or for a ...
An exotic derivative, in finance, is a derivative which is more complex than commonly traded "vanilla" products. This complexity usually relates to determination of payoff; [ 1 ] see option style . The category may also include derivatives with a non-standard subject matter - i.e., underlying - developed for a particular client or a particular ...
A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market.The currency that is used as the reference is called the counter currency, quote currency, or currency [1] and the currency that is quoted in relation is called the base currency or transaction currency.
Fixed currency Anchor currency Rate (anchor / fixed) Abkhazian apsar: Russian ruble: 0.1 Alderney pound (only coins) [1]: Pound sterling: 1 Aruban florin: U.S. dollar: 1.79
The Euro/US Dollar pair, the most popular currency pair traded, has cooled off a bit in September after a strong uptrend in August, as the chart below shows. Where Do The Major Forex Pairs Go From ...
Suppose that is the risk-free interest rate to expiry of the domestic currency and is the foreign currency risk-free interest rate (where domestic currency is the currency in which we obtain the value of the option; the formula also requires that FX rates – both strike and current spot be quoted in terms of "units of domestic currency per ...
More generally though, simulation is employed for path dependent exotic derivatives, such as Asian options. In other cases, the source of uncertainty may be at a remove. For example, for bond options [3] the underlying is a bond, but the source of uncertainty is the annualized interest rate (i.e. the short rate).