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hhb


Total Posts: 5
Joined: Sep 2015
 
Posted: 2017-04-26 10:45
I am trying to price cross ccy Fx option where fx (vol) smile data for that ccy pair is not available.

Example: Trying to price MXNJPY Fx option (in JPY and USD terms) using fx smile data available for USDMXN and USDJPY.

Does anyone has any experience in how to model these? Any relevant paper/book or any other references/guidance would be really helpful.

tbretagn


Total Posts: 245
Joined: Oct 2004
 
Posted: 2017-04-26 11:25
I'd say look for copulas. There's a few papers around on the pricing of exotic options (where this is issue is relevant). The question is what the implied correlation should be. Which is not an easy question to answer.

Et meme si ce n'est pas vrai, il faut croire en l'histoire ancienne

hhb


Total Posts: 5
Joined: Sep 2015
 
Posted: 2017-04-26 16:03
Thanks tbretagn...Do you know any specific papers that I should look for in copulas? Really appreciate any other suggestions.

ronin


Total Posts: 206
Joined: May 2006
 
Posted: 2017-04-26 16:09

It is called fx volatility triangle - google it.


"People say nothing's impossible, but I do nothing every day" --Winnie The Pooh
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