@techreport{NBERw4458,
 title = "Realignment Risk and Currency Option Pricing in Target Zones",
 author = "Bernard Dumas and L. Peter Jennergren and Bertil Naslund",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "4458",
 year = "1993",
 month = "September",
 URL = "http://www.nber.org/papers/w4458",
 abstract = {This paper extends the Krugman target zone model by including a realignment mechanism. Various properties of that realignment mechanism are discussed. The movement of the exchange rate is governed both by a Wiener process on fundamental and by a Poisson jump process with endogenous realignment size. The realignment mechanism is such that (except in cases where a speculative attack occurs) no jump in fundamental is needed to accompany the jump in the exchange rate. A risk neutral valuation of currency options is constructed. Some properties of option values under realignment risk are illustrated by numerical results.},
}