USD/THB FOREIGN EXCHANGE OPTION PRICING AND APPLICATIONS IN RISK MANAGEMENT FOR EXPORT AND IMPORT BUSINESS

  • ดนัยภัทร เนตรพิทูร
  • สมพร ปั่นโภชา
  • บำรุง พ่วงเกิด
Keywords: Black Sholes Merton, Binomial, Implied Volatility, FX Call Option, FX Put Option

Abstract

The objective of this study is to pricing the foreign exchange option of USD/THB by Black Sholes Merton Model and Binomial Tree Model for Exporter and Importer

Results show that price of option from Black Sholes Merton Model and Binomial Tree must be nearly equal when add more step in Binomial Tree. These models are then employed for pricing the foreign exchange option for option seller. It is showing that the price from theoretical is less than the price that option sellers sell in the OTC market. Because option sellers add the high value of volatility calls “Implied Volatility”. Implied Volatility is the cost of option making option seller get more profit and reduce their risk too.

Finally, case study of exporter and importer in Thailand show that importer use the FX Call Option to protect risk when USD bearish and exporter use the FX Put Option to protect risk when USD bullish.

Published
2018-09-01
Section
Engineering and Technology Articles

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