Pricing Foreign Exchange Options

Incorporating Purchasing Power Parity, Second Edition


David W. K. Yeung and Michael Tow Cheung

ISBN : 978-962-209-454-3

Economics, Finance, Business, Management

February 1998

104 pages, 6.5″ x 9.5″

  • HK$65.00

This book develops a new and interesting approach to the valuation of foreign exchange options. The authors synthesise international monetary theory with the Samuelson-Black-Scholes insight that assets prices follow diffusion processes, and obtain a system of stochastic differential equations to model exchange rate dynamics under the influence of purchasing power parity. An exact formula to price foreign currency options is obtained, which incorporates the influence of its purchasing power parity. The book is essential to advanced undergraduate and graduate students who wish to learn about the modern theory of foreign exchange options. Since its results are completely operational, the book will also prove to be invaluable for practitioners in the financial markets.

David W. K. Yeung received his Ph.D. from York University. He has been a visiting assistant professor at Queen’s University, assistant professor at York University, associate professor at the University of Windsor, and senior fellow and senior lecturer at the National University of Singapore. He is currently an associate professor at the School of Economics and Finance, the University of Hong Kong. He has published over fifty academic articles on economics, finance and operations research. He is also the editor of International Game Theory Review. Michael Tow Cheung received his Ph.D. from the London School of Economics, University of London. He has been a Nuffield Fellow, Research Fellow at the Centre for Banking and International Finance, City University (London), visiting associate professor at Simon Fraser University, and visiting senior fellow at Nanyang Technological University Business School. He is currently an associate professor at the School of Economics and Finance, the University of Hong Kong, and assistant editor of Asian Economic Journal