Download This PaperFX Basic Notions and Randomization
15 Pages Posted: 13 Dec 2011
Date Written: December 12, 2011
Abstract
In this paper that is the second part of [1] we outlined basic of foreign exchange and its randomization. We presented a model of forward rate implied by stochastic bond prices. A particular attention is paid to a construction of the LIBOR rate. In our models we distinct stochastic pricing of a contract and its implied market price which is interpreted as market weighted estimate of the ‘fair’ price. This interpretation of the derivatives pricing was developed in [2].
Keywords: Spot rate, stochastic FX exchange, stochastic interest rate, stochastic forward rate, LIBOR
JEL Classification: G12, G13, G15
Suggested Citation: Suggested Citation
Gikhman, Ilya I., FX Basic Notions and Randomization (December 12, 2011). Available at SSRN: https://ssrn.com/abstract=1971373 or http://dx.doi.org/10.2139/ssrn.1971373
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