Foreign Exchange Options (FX Option Calculator - iPhone/iPad App)
Foreign exchange option (also called FX option or currency option) is a derivative financial instrument that grants the owner the right but
not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified
date. There are 2 types of options: call (the right to buy) and put (the right to sell) foreign exchange at a fixed date and price.
As in the "Black-Scholes option price model" for stock options, the value of a European option on an FX rate is also calculated by
utilizing Black-Scholes model following a log-normal process. There are 6 inputs required in the Black-Scholes option valuation model:
- Current spot exchange rate;
- The strike price;
- The time to maturity;
- Domestic risk free interest rate;
- Foreign risk free interest rates; and
- Volatility of the FX rate.
Simple solutions for financial professionals on
complicated option valuations and beyond...
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