Valuation & Hedging of FX Options

While foreign exchange (FX) options have been available in the financial markets for decades, the valuation and hedging of options can still be somewhat challenging, especially for exotic options.

For vanilla and some semi-exotic options, replicating the option’s payoff via vanilla instruments can simplify pricing and risk calculations. For complex options, however, replication is not always practical. And different pricing models are utilized by market practitioners, but which models best depict volatility smile dynamics for pricing exotic FX options? What if the volatility surface, which is essential for pricing and hedging, is not available?

Join Dr. Ping Sun of Numerix as he provides a primer on the best practices and key issues for practitioners to consider when valuing and hedging FX options.

Dr. Sun covers:

  • Introduction to different types of derivatives in the FX market
  • Pricing, delta hedging, and replication of FX options
  • Volatility smiles and hedging dynamics for different FX pricing models
  • How to generate a volatility surface when an FX pair lacks volatility data
  • Key takeaways

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