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Consistent Pricing of FX Options Antonio Castagna Fabio Mercurio Banca IMI, Milan In the current markets, options with diﬀerent strikes or maturities are usually priced with diﬀerent implied volatilities. This stylized fact, which is commonly referred to as

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Pricing Currency Put Options According to Put-Call Parity Given the premium of a European call option (called C), the premium for a European put option (called P) on the same currency and same exercise price (X) can be derived from put-call parity, as shown below:

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1 Implied Correlation for Pricing multi-FX options Pavel V. Shevchenko, CSIRO Mathematical and Information Sciences, Sydney, Australia 1st submitted version: 1 April 2004 Published in Derivatives Week, 13 March 2006, pp. 8-9 and 20 March 2006 pp. 10-11. www.derivativesweek.com

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In the current markets, options with different strikes or maturities are usually priced with different implied volatilities. This stylized fact, which is commonly referred to asfsmile effect, can be accommodated by resorting to specific models, either for pricing exotic derivatives or for inferring

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This book covers foreign exchange options from the point of view of the finance practitioner. It contains everything a quant or trader working in a bank or hedge fund would need to know about the mathematics of foreign exchange-not just the theoretical mathematics covered in other books but also comprehensive coverage of implementation, pricing and calibration.

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