THE IMPACT OF FOREIGN EXCHANGE VOLATILITY ON THE PRICE FORMING OF CURRENCY OPTION

• Main Authors: CHANG, CHEN-TAI, 張岑黛
• Other Authors: Chin-Horng Chan
• Format: Others
• Language: zh-TW
• Published: 1997
• Online Access: http://ndltd.ncl.edu.tw/handle/20139464904942579258

碩士 === 長庚醫學暨工程學院 === 管理科學系 === 85 === The Central Bank of China has already announced that Taiwan foreign exchange option is allowed to trade in market since May 1997. Definitely, thiswill be another efficient alternative tool for companies and investors to hedge and to arbitrage in foreign exchange market. Data come from Deutsche Mark (DM) and Japanese Yen (JY) currency option data of Philadelphia Stock Exchange (PHLX). The main purpose of this thesis is to predict and to test the difference between market price and theory price, based on European Currency Option Pricing Model of Biger & Hull(1983)*s. Regression analysis and the rate of disparity analysis are employed to test the best volatility estimations. The research is divided into two stages. The first stage is test period from January 1, 1995 to December 31, 1995.The second stage is predict period from January 1, 1996 to December 31,1996.According to Biger & Hull(1983)*s currency option pricing theory, we know that those five main variables can be acquired from market except volatility. In this paper, 30-days moving average standard deviation, weighted implied volatility( WISD), autoregressive conditional heteroscedastic(ARCH), and Generalized ARCH(GARCH) are employed to estimate the foreign exchange volatility.The conclusions are in the following,1. According to regression analysis, the best volatility estimation methods are 30-days moving average standard deviation and WISD. But the rate of disparity analysis shows that WISD is more accurate than 30- days moving average standard deviation. 2. Both test stage and predict stage show that it is more suitable to use Biger & Hull currency option pricing model in DM currency option than in JY currency option. 3. Call option is more accurate than put option. 4. The predict stage is better than test stage. This is because the volatility of foreign exchange of 1996 is smaller than the volatility of 1995.