The Garman Kohlhagen (1983)model may be used to price an European-type option where:

A) the exchange rate is assumed normally distributed
B) foreign and domestic interest rates are assumed known at all maturities
C) foreign and domestic interest rates are non-stochastic at all maturities
D) all of these options

Question

The Garman Kohlhagen (1983)model may be used to price an European-type option where:

A) the exchange rate is assumed normally distributed
B) foreign and domestic interest rates are assumed known at all maturities
C) foreign and domestic interest rates are non-stochastic at all maturities
D) all of these options

Quizplus · Accepted Answer

A modified form of the Black-Scholes option pricing model,called the Garman Kohlhagen (1983)model,may be used to price this European-type option where the exchange rate is assumed normally distributed and foreign and domestic interest rates are assumed known,or non-stochastic,at all maturities.Generally the foreign currency is assumed equivalent to a stock that pays a known dividend yield.

The Garman Kohlhagen (1983)model May Be Used to Price an European-Type