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An Extended Model of Currency Options Applicable as Policy Tool for Central Banks with Inflation Targeting and Dollarized Economies
GPI Asset Management S.A., Lima, Perú
- 1 GPI Asset Management S.A., Lima, Perú
Theoretical Economics Letters·Volume 03 (2013)·Pages 164–167·Published 7 June 2013·DOI10.4236/tel.2013.33027
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Abstract
The purpose of this paper is to provide a new set of tools for policy makers at central banks. Based on the Garman - Kohlhagen [1] formula for currency options, this research extends it with the Taylor-rule expression used for inflation targeting, thus obtaining the corresponding Call and Put options and the first and higher-degree partial derivatives known as “Greeks” for key variables such as the policy target domestic interest rate and the output gap.
KeywordsInflation TargetingCentral Bank PoliciesExchange RatesCurrency Options
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