Analysis Of Exchange Rate Risk Based On Option Theory

Financial mathematics is a new developing frontier branch of science and is now being paid close attention to in the domain of international finance and applied mathematics. The coming of the globalized economy brings about new subjects in economic theories. This paper is devoted to exchange rates on the option theories.This paper first introduces the basic researches made by previous researchers on the part of Net Present Value, Option Pricing Model and Option Pricing theory, which are used in venture investment. It makes a study on the evaluation of financial option under the influence of exchange rate parameter. Then, the option pricing formula with exchange rate parameter is established on the basis of European option formula. And it also makes an analysis about the exchange rate venture of multinational investment. And it makes a research on the assessment of real option. Firstly, it introduces the basic real option theory. Then the option pricing model with exchange rate is established. Furthermore, it makes an analysis of the role played by option in managing the exchange rate venture in multinational dealing.Secondly, it gives a discussion about the model of option with exchange rate on the basis of stochastic analysis and martingale theory. This call option is studied with different currency measurement. Then the pricing of option with exchange rate is researched by providing an exchange rate process. And it also discusses the affection of the exchange rate fluctuation towards option value.Finally, it considers a competitive multinational model, for which, it provides the principles of making the plan of production and output on the basis of the new concepts of option. Then the thesis gets the conclusion that in the marginal meaning, the wide exchange rate fluctuation increases the value of the output option. That is to say multinationals (or at least some multinationals) can make use of the wide exchange rate fluctuation to increase their production and output. And by the comparison of the changes of exchange rate between RMB and dollar and of Sino-U.S. trade amount from 1987 to 2001, it indicates that the wide exchange rate fluctuation can increase the value of output option and may lead in a great increase in trade amount.