Modeling volatility in foreign currency option pricing
This paper presents a general optimization framework to forecast put and call option prices by exploiting the volatility of the options prices. The approach is flexible in that different objective functions for predicting the underlying volatility can be modified and adapted in the proposed framewor...
| Main Authors: | , , |
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| Format: | Working Paper |
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School of Economics and Finance, Curtin Business School
2008
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| Online Access: | http://hdl.handle.net/20.500.11937/10204 |
| _version_ | 1848746168211734528 |
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| author | Hoque, Mohammed Chan, Felix Manzur, Meher |
| author_facet | Hoque, Mohammed Chan, Felix Manzur, Meher |
| author_sort | Hoque, Mohammed |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | This paper presents a general optimization framework to forecast put and call option prices by exploiting the volatility of the options prices. The approach is flexible in that different objective functions for predicting the underlying volatility can be modified and adapted in the proposed framework. The framework is implemented empirically for four major currencies, including Euro. The forecast performance of this framework is compared with the forecast performance of the Multiplicative Error Model (MEM) of implied volatility and the GARCH(1,1). The results indicate that the proposed framework is capable of producing reasonably accurate forecasts for put and call prices. |
| first_indexed | 2025-11-14T06:28:58Z |
| format | Working Paper |
| id | curtin-20.500.11937-10204 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T06:28:58Z |
| publishDate | 2008 |
| publisher | School of Economics and Finance, Curtin Business School |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-102042017-01-30T11:17:24Z Modeling volatility in foreign currency option pricing Hoque, Mohammed Chan, Felix Manzur, Meher multiplicative error model implied volatility foreign currency options GARCH model optimal volatility This paper presents a general optimization framework to forecast put and call option prices by exploiting the volatility of the options prices. The approach is flexible in that different objective functions for predicting the underlying volatility can be modified and adapted in the proposed framework. The framework is implemented empirically for four major currencies, including Euro. The forecast performance of this framework is compared with the forecast performance of the Multiplicative Error Model (MEM) of implied volatility and the GARCH(1,1). The results indicate that the proposed framework is capable of producing reasonably accurate forecasts for put and call prices. 2008 Working Paper http://hdl.handle.net/20.500.11937/10204 School of Economics and Finance, Curtin Business School fulltext |
| spellingShingle | multiplicative error model implied volatility foreign currency options GARCH model optimal volatility Hoque, Mohammed Chan, Felix Manzur, Meher Modeling volatility in foreign currency option pricing |
| title | Modeling volatility in foreign currency option pricing |
| title_full | Modeling volatility in foreign currency option pricing |
| title_fullStr | Modeling volatility in foreign currency option pricing |
| title_full_unstemmed | Modeling volatility in foreign currency option pricing |
| title_short | Modeling volatility in foreign currency option pricing |
| title_sort | modeling volatility in foreign currency option pricing |
| topic | multiplicative error model implied volatility foreign currency options GARCH model optimal volatility |
| url | http://hdl.handle.net/20.500.11937/10204 |