An Extended Model of Currency Options Applicable as Policy Tool for Central Banks with Inflation Targeting and Dollarized Economies

DOI: 10.4236/tel.2013.33027   PDF   HTML     4,899 Downloads   6,684 Views   Citations

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 [1] 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 the first and higher-degree partial derivatives known as “Greeks” for key variables such as the policy target domestic interest rate and the output gap.

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L. Arizmendi, "An Extended Model of Currency Options Applicable as Policy Tool for Central Banks with Inflation Targeting and Dollarized Economies," Theoretical Economics Letters, Vol. 3 No. 3, 2013, pp. 164-167. doi: 10.4236/tel.2013.33027.

Conflicts of Interest

The authors declare no conflicts of interest.

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