Modeling Foreign Exchange Options

Focuses on the modeling aspects, implementation issues, and looks at which model to use for which product, how the mathematics behind them works and how to code it up efficiently. This book moves beyond using the basic Black Scholes equation to explain various products, pricing models and numerical techniques for implementing a pricing model.

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Hands-on quantitative techniques for the FX derivatives markets

Modeling Foreign Exchange Options provides practical instruction on the pricing and implementation of FX structured products for the FX market. Written by an internationally renowned academic and practitioner, this book goes beyond the basic Black Scholes equation to price options using volatility smile and surface construction and consistent stochastic volatility models (SLV), Monte Carlo techniques, and finite difference techniques. Coverage focuses on the most popular and real-life tested FX derivatives models, its implementation issues, describing the mathematical basis of each model and showing you how to calibrate the model to the product for the most accurate result. You learn why SLV is superior to traditional vanna-volga approaches in terms of consistency and firm-wide model governance. From industry standards to the latest techniques out of academic publications, this helpful guide explores the broad range of FX derivatives pricing tools and methods at your disposal.

While the author's previous book, FX Options and Structured Products, delves into the structure and sales side of exotic options, this book turns to the quantitative to provide clear guidance through more complex operations that improve accuracy and provide more nuanced information.



Move beyond the basic Black Scholes equation with advanced pricing methods
Model the FX volatility surface, with a critical view on interpolation and extrapolation
Understand the mathematics behind the models, and how to apply them efficiently

The FX market is the largest in the world, exceeding $1.9 trillion per day. With this much money changing hands in the blink of an eye, advanced quantitative techniques go a long way toward improving your position. Modeling Foreign Exchange Options is the uniquely comprehensive guide to modeling and pricing structured products.