Abstracts

We consider the pricing of foreign exchange (FX) European options. The foreign-domestic parity provides a no-arbitrage relationship between call options on the e.g. EURUSD exchange rate and puts on USDEUR. This no arbitrage requirement implies a set of restrictions on the parameters of the model under different pricing measures. We generalize the results in Del Bano Rollin (2008) to the class of affine stochastic volatility models and exponential Lévy processes and show that these models price calls and puts coherently, i.e. in line with the foreign-domestic parity. We then provide an example which generalizes the model of De Col et al. (2013). Paper available at http://www.fm.mathematik.uni-muenchen.de/download/coherent.pdf