Options Embedded in Physical Money
Posted: 9 Dec 2008 Last revised: 24 Mar 2009
Date Written: December 9, 2008
Embedded options in the worlds physical monies, both coin and paper, are introduced. The option value for base metal coins is presented. The various strategies for redemption by the owner and the prevention of redemption by the issuer (central banks) are discussed. The market values of gold coins are discussed in light of the embedded option valuation. In conclusion, the rational behavior of both individuals and central banks in light of these valuations is described.
Keywords: Coins, bills, paper money, gold and silver coins, central
JEL Classification: E41, E52, E58, G12, G13
Suggested Citation: Suggested Citation