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makros5
April 14th 2008, 10:40 AM
Hi,

Can someone please tell me, how do we figure out which interest we have to use for domestic and which interest rate for the foreign in Currency options. I am confused sometimes, when I am doing the ASM manual.

Thanks in advance

Abraham Weishaus
April 14th 2008, 08:11 PM
The domestic rate is the one the option is denominated in and the currency of the strike price.

Treat the foreign currency as if it were a stock. The foreign rate is like a dividend on that stock. The foreign rate is used for the asset you have the option to sell or buy.

makros5
April 15th 2008, 08:32 AM
Thank you so much Weishaus.


The domestic rate is the one the option is denominated in and the currency of the strike price.

Treat the foreign currency as if it were a stock. The foreign rate is like a dividend on that stock. The foreign rate is used for the asset you have the option to sell or buy.