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Valuation of Foreign Currency Options: Some Empirical Tests

Published online by Cambridge University Press:  06 April 2009

Kuldeep Shastri  and
Kishore Tandon
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Abstract

This paper investigates the efficiency of the market for foreign currency options with the help of a modified version of the Black-Scholes model. The evidence in the ex post tests is inconsistent with this hypothesis since we find a large number of opportunities for abnormal profits. A second set of tests is conducted on an ex ante basis to determine whether these profit opportunities exist even if the execution of the strategy is delayed by one day. The evidence from these tests provides more support for the hypothesis of market efficiency.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 21 , Issue 2 , June 1986 , pp. 145 - 160
Copyright
Copyright © School of Business Administration, University of Washington 1986

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References

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