TITLE:
Pricing a European Option in a Black-Scholes Quanto Market When Stock Price is a Semimartingale
AUTHORS:
E. R. Offen, E. M. Lungu
KEYWORDS:
Semimartingale, Hedging, Arbitrage, Contingent Claim
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.5 No.3,
July
30,
2015
ABSTRACT: We look at the price of the European call option in a quanto market defined on a filtered probability space when the exchange rate is being modeled by the process where Ht is a semimartingale. Precisely we look at an investor in a Sterling market who intends to buy a European call option in a Dollar market. The market consists of a Dollar bond, Sterling bond and and Sterling risky asset. We first of all convert the Sterling assets by using the exchange rate Et and later on derive an integro-differential equation that can be used to calculate the price on the option.