An extended model of currency options applicable as policy tool for central banks with inflation targeting and dollarized economies

Arizmendi, Luis-Felipe (2013): An extended model of currency options applicable as policy tool for central banks with inflation targeting and dollarized economies. Published in: Theoretical Economics Letters , Vol. 3, No. June (7 June 2013): pp. 164-167.

Abstract

The purpose of this paper is to provide a new set of tools for policy makers at central banks. Based on the Garman-Kohlhagen formula for currency options, this research extends it with the Taylor-rule expression used for inflation targeting, thus obtaining the corresponding Call and Put options and higher-degree partial derivatives known as "Greeks" for key variables such as the policy target domestic interest rate and the output gap.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation Targeting, Central bank policies, Exchange rates, Currency options.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing

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