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Future and Options on Foreign Exchange - Coggle Diagram
Future and Options on Foreign Exchange
Currency Options Markets
Are an option on a currency futures contract.
Exercise of a currency futures option results in a long futures position for the holder of a call or the writer of a put.
Exercise of a currency futures option results in a short futures position for the seller of a call or the buyer of a put.
If the futures position is not offset prior to its expiration, foreign currency will change hands.
Basic Option-Pricing Relationships at Expiration
CaT = CeT = Max[ST -E, 0]
PaT = PeT = Max[E -ST , 0]
American Option Pricing Relationships
CaT >CeT = Max[ST -E, 0]
PaT >PeT = Max[E -ST , 0]
Futures Contracts: Some Preliminaries
Delivery Month
Daily marked-to-market
Contract size
Initial performance bond
Currency Futures Markets
Chicago Mercantile Exchange
Currency Futures Markets
Basic Currency
Futures Relationships
Open Interest refers to the number of contracts outstanding for a particular delivery month.
Open interest is a good proxy for demand for a contract.
Ft($/i)=S0$/i) [{(1+r$)^t}/ {(1+ri)^t}]
Options Contracts: Some Preliminaries
An option gives the holder the right, but not the obligation, to buy or sell a given quantity of an asset in the future, at prices agreed upon today.
Calls vs. Puts
Call options gives the holder the right, but not the obligation, to buy a given quantity of some asset at some time in the future, at prices agreed upon today.
Put options gives the holder the right, but not the obligation, to sell a given quantity of some asset at some time in the future, at prices agreed upon today.