| In recent years, with the deepening of fnancial reform and the openingof the China (Shanghai) PilotFree Trade Zone, interest rate has a moreand more important impact on the fnancial instruments.At present, there are two types of research on European call for-eign exchange option pricing problem. One type is that the domestic andforeign interest rates are certain, while the exchange rate is a random vari-able. The other is the domestic interest rate, the foreign interest rate andexchange rate are all random variables.The thesis is based on the theory of CRRA neutral pricing and thestochastic diferential equation to for the latter type. Interest rate re-spectively satisfy Vasick model, and exchange rate meet the conditionsof logarithmic fall model. Using the theory of CRRA neutral pricing, apartial diferent equation for the pricing function in domestic currencyof foreign currency option is established. This is a very complex partialdiferential equation. Through analyzing the structure of the equation,we get the solution expression by using the tools of ordinary diferentialequations and constructing a new transformation. In addition, the priceevolution of foreign currency option when interest rate and exchange rateand their volatility move, is examined. |
