ON THE PRICING OF CROSS CURRENCY FUTURES OPTIONS FOR CANADIAN GRAINS AND LIVESTOCK

This paper explores the problem of pricing an option on the cash commodity in Canadian dollars when the commodity is priced relative to a U.S. futures market. A general options pricing model is developed that separates out the value of a quantos risk and basis risk. The paper uses daily data for cattle, corn and soybeans in Ontario, and the model is employed to price the option on the cash commodity with basis risk and the option on a quantos, without basis risk. The relationship between the pricing model and over-the-counter options and market revenue insurance is also discussed.


Subject(s):
Issue Date:
2002
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/34123
Total Pages:
16
Series Statement:
Working Paper 02/07




 Record created 2017-04-01, last modified 2017-08-25

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