Pricing and Hedging International Equity Derivatives

Posted: 1 Jun 2001

Abstract

Derivatives traded in the OTC markets may sometimes involve both asset price risk and exchange rate risk. This article provides an unified treatment of the pricing and hedging of path independent international equity derivatives. After modeling the international economy, we derive a partial differential equation that the pricing formula of any path independent derivative asset exposed to both equity risk and exchange rate risk has to satisfy. We use this result to derive pricing results for a variety of instuments. In addition, we derive and discuss the replication strategies that can be used to hedge these contracts.

JEL Classification: G13

Suggested Citation

Kat, Harry M., Pricing and Hedging International Equity Derivatives. Journal of Derivatives, Vol. 2, No. 2, Winter 1994; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=265006

Harry M. Kat (Contact Author)

Independent

No Address Available

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