Foreign Exchange Option Symmetry

By: Valery A. Kholodnyi, John F. Price

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Product code: 9815
ISBN: 9810233620
160 pages
Format: Hb
Published by: World Scientific Books, 1998, 1st edition

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Foreign Exchange Option Symmetry - front page cover image

Description of Foreign Exchange Option Symmetry

This book studies the actual financial phenomena underlying the evaluation of financial derivatives, which is today virtually identified with and even replaced by the study of the mathematical aspects of stochastic calculus as a model for such phenomena. It adopts the view that the study of financial phenomena is on the brink of a revolution similar to that of quantum physics in the 1920s. History has shown that virtually all the major revolutions in physics were made through recognizing the presence of an inherent symmetry in underlying phenomena. In this volume, a fundamental symmetry in a foreign exchange market that associates financially equivalent options on opposite sides of the market is introduced. This symmetry holds in a general foreign exchange market environment. In particular, it requires no assumptions to be made on the nature of a probability distribution for exchange rates — not even on the existence of such a distribution. The practical applications of the symmetry are significant and far reaching. They range from the detection of a new type of true arbitrage and a screen for consistency of option pricing models, to the reduction of the cost of software development. The symmetry introduced is not restricted to foreign exchange markets but is also valid for any financial markets.

Foreign Exchange Option Symmetry - Chapter headings

Preface
List of Figures

1. Introduction

Part I: Financial Matters
2. Market Environment
3. Symmetry in a Foreign Exchange Market
4. Further Symmetries
5. Options with Consistently Smoothed Payoffs
6. Applications

Part II: Mathematical Matters
7. Validity of the Symmetry Relationships for European Options
8. Validity of the Symmetry Relationships for Bermudan and American Options
9. Validity of the Symmetry Relationships for Options with Consistently Smoothed Payoffs

Bibliography

Index

Authobiography of Valery A. Kholodnyi, John F. Price

Valery A Kholodnyi received his PhD in Applied Mathematics from the Moscow Institute of Electronics and Mathematics. He has held various university positions in Russia and the United States and has authored or co-authored over 60 research papers in finance, mathematics, theoretical physics and engineering. He currently serves as Vice-President of R&D for Integrated Energy Services.

John F Price received his PhD in Mathematics from the Australian National University before holding university positions in Australia, Europe and United States. He has published over 60 papers in mathematics, physics and finance, and has designed risk management software for major corporations.

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