An Extended Model of Currency Options Applicable as Policy Tool for Central Banks with Inflation Targeting and Dollarized EconomiesReport as inadecuate




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The purpose of this paper is to provide anew set of tools for policy makers at central banks. Based on the Garman-Kohlhagen1 formula for currency options, this research extends it with theTaylor-rule expression used for inflation targeting, thus obtaining thecorresponding Call and Put options and the first and higher-degree partialderivatives known as -Greeks- for key variables such as the policy targetdomestic interest rate and the output gap.

KEYWORDS

Inflation Targeting; Central Bank Policies; Exchange Rates; Currency Options

Cite this paper

L. Arizmendi -An Extended Model of Currency Options Applicable as Policy Tool for Central Banks with Inflation Targeting and Dollarized Economies,- Theoretical Economics Letters, Vol. 3 No. 3, 2013, pp. 164-167. doi: 10.4236-tel.2013.33027.





Author: Luis-Felipe Arizmendi

Source: http://www.scirp.org/



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