NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Currency Option Pricing in Credible Target Zones

Bernard Dumas, L. Peter Jennergren, Bertil Naslund

NBER Working Paper No. 4522
Issued in November 1993
NBER Program(s):   AP   IFM

This paper develops a model for valuing options on a currency which is maintained within a band. The starting point of our model is the well known Krugman model for exchange-rate behavior within a target zone. Results from model runs provide insight into evidence reported by other authors of mispricing of currency options by extensions of the Black-Scholes model.

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Document Object Identifier (DOI): 10.3386/w4522

Published: Review of Futures Markets, Vol. 12, No. 2, pp. 323-346. (April 1992)

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