TITLE:
An Extended Model of Currency Options Applicable as Policy Tool for Central Banks with Inflation Targeting and Dollarized Economies
AUTHORS:
Luis-Felipe Arizmendi
KEYWORDS:
Inflation Targeting; Central Bank Policies; Exchange Rates; Currency Options
JOURNAL NAME:
Theoretical Economics Letters,
Vol.3 No.3,
June
7,
2013
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.