Foreign Exchange Option Pricing: A Practitioner's Guide

List of Figures

Figure 1.1 Dates of importance for FX trading

Figure 2.1 Payout function VT for European call

Figure 2.2 Payout function VT for European put

Figure 2.3 Payout function VT for European forward

Figure 2.4 Sample leptokurtic density functions: (a) leptokurtic density functions – large-scale view; (b) leptokurtic density functions – tail region

Figure 2.5 Leptokurtic likelihood ratio: Pearson VII(1000) relative to N(0, 1)

Figure 3.1 Vd;pips value profile for delta-neutral straddle (T = 1.0, K = 1.3620)

Figure 3.2 Vd;pips value profile for 25-delta market strangle (call component) (T = 1.0, K = 1.5449)

Figure 3.3 Vd;pips value profile for 25-delta market strangle (put component) (T = 1.0, K = 1.2050)

Figure 3.4 Schematic illustration of the smile strangle

Figure 3.5 Schematic illustration of the market strangle

Figure 3.6 Highly skewed smile (1Y USDJPY)

Figure 4.1 Volatility surface for EURUSD. © 2010 Bloomberg Finance L.P. All rights reserved. Used with permission

Figure 4.2 Volatility surface for USDJPY. © 2010 Bloomberg Finance L.P. All rights reserved. Used with permission

Figure 4.3 Upper and lower bounds for interpolated volatility term structure

Figure 4.4 Intraday forward volatility mask for EURUSD

Figure 5.1 Sample local volatility

Figure 6.1 Increasing dispersion of a driftless variance process reduces σATM

Figure 6.2 Initial probability distribution for the forward Fokker–Planck equation

Figure 6.3 Interim probability distribution from the forward Fokker–Planck ...