Pricing of European Currency Options with Uncertain Exchange Rate and Stochastic Interest Rates

<div>European call currency option price <svg height="11.8174pt" id="M271" style="vertical-align:-3.1815pt" version="1.1" viewbox="-0.0498162 -8.6359 14.9396 11.8174" width="14.9396pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M645 631C614 643 545 666 457 666C215 666 23 519 23 283C23 90 158 -16 337 -16C412 -16 489 2 522 10C543 39 590 127 606 167L580 181C519 89 459 18 348 18C201 18 122 136 122 287C122 464 244 632 435 632C544 632 602 595 608 472L639 475C643 526 645 581 645 631Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,8.619,3.132)"><path d="M615 650H141L132 618C223 612 227 607 212 526L136 123C122 42 112 38 27 32L18 0H522C539 33 580 135 592 166L558 179C536 139 512 100 486 75C454 48 420 41 345 41C287 41 252 42 237 55C221 68 220 100 231 158L261 316H357C455 316 455 309 455 235H489L529 437H494C468 366 460 360 369 360H269L305 565C315 609 316 611 357 611H450C525 611 535 599 548 578C559 556 561 526 560 482L595 486L615 650Z"></path></g></svg> versus parameters <svg height="9.14241pt" id="M272" style="vertical-align:-3.1815pt" version="1.1" viewbox="-0.0498162 -5.96091 11.0615 9.14241" width="11.0615pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M483 97L471 123C436 91 401 65 392 65C388 65 384 74 390 106C414 239 444 378 457 429L455 433C444 433 429 436 416 439C392 444 368 448 344 448C281 448 204 415 152 376C71 315 23 205 23 103C23 21 57 -12 85 -12C114 -12 149 6 185 34C231 70 285 119 329 183H331L309 81C292 0 308 -12 326 -12C350 -12 421 24 483 97ZM374 387C370 363 356 291 345 261C315 193 181 50 139 50C124 50 110 71 110 118C110 224 153 331 218 379C238 394 271 402 301 402C329 402 359 394 374 387Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,5.993,3.132)"><path d="M389 0V32C297 38 291 46 291 118V635C234 613 175 595 109 583V556L161 554C203 552 207 547 207 497V118C207 46 201 38 110 32V0H389Z"></path></g></svg> and <span class="nowrap"><svg height="9.14241pt" id="M273" style="vertical-align:-3.1815pt" version="1.1" viewbox="-0.0498162 -5.96091 11.0615 9.14241" width="11.0615pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M483 97L471 123C436 91 401 65 392 65C388 65 384 74 390 106C414 239 444 378 457 429L455 433C444 433 429 436 416 439C392 444 368 448 344 448C281 448 204 415 152 376C71 315 23 205 23 103C23 21 57 -12 85 -12C114 -12 149 6 185 34C231 70 285 119 329 183H331L309 81C292 0 308 -12 326 -12C350 -12 421 24 483 97ZM374 387C370 363 356 291 345 261C315 193 181 50 139 50C124 50 110 71 110 118C110 224 153 331 218 379C238 394 271 402 301 402C329 402 359 394 374 387Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,5.993,3.132)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g></svg>,</span> where <svg height="12.4698pt" id="M274" style="vertical-align:-3.18147pt" version="1.1" viewbox="-0.0498162 -9.28833 34.591 12.4698" width="34.591pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M300 -147C201 -63 143 98 143 270S200 602 300 686L282 710C136 610 70 450 70 271V270C70 89 136 -72 282 -170L300 -147Z"></path></g><g transform="matrix(.013,0,0,-0.013,4.498,0)"><path d="M384 0V27C293 34 287 42 287 114V635C232 613 172 594 109 583V559L157 557C201 555 205 550 205 499V114C205 42 199 34 109 27V0H384Z"></path></g><g transform="matrix(.013,0,0,-0.013,10.738,0)"><path d="M275 270C275 450 212 609 64 710L45 686C145 604 203 442 203 270S147 -63 45 -147L64 -170C213 -68 275 89 275 270Z"></path></g><g transform="matrix(.013,0,0,-0.013,19.594,0)"><path d="M645 631C614 643 545 666 457 666C215 666 23 519 23 283C23 90 158 -16 337 -16C412 -16 489 2 522 10C543 39 590 127 606 167L580 181C519 89 459 18 348 18C201 18 122 136 122 287C122 464 244 632 435 632C544 632 602 595 608 472L639 475C643 526 645 581 645 631Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,28.213,3.132)"><path d="M615 650H141L132 618C223 612 227 607 212 526L136 123C122 42 112 38 27 32L18 0H522C539 33 580 135 592 166L558 179C536 139 512 100 486 75C454 48 420 41 345 41C287 41 252 42 237 55C221 68 220 100 231 158L261 316H357C455 316 455 309 455 235H489L529 437H494C468 366 460 360 369 360H269L305 565C315 609 316 611 357 611H450C525 611 535 599 548 578C559 556 561 526 560 482L595 486L615 650Z"></path></g></svg> versus <svg height="12.4698pt" id="M275" style="vertical-align:-3.18147pt" version="1.1" viewbox="-0.0498162 -9.28833 55.0654 12.4698" width="55.0654pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M483 97L471 123C436 91 401 65 392 65C388 65 384 74 390 106C414 239 444 378 457 429L455 433C444 433 429 436 416 439C392 444 368 448 344 448C281 448 204 415 152 376C71 315 23 205 23 103C23 21 57 -12 85 -12C114 -12 149 6 185 34C231 70 285 119 329 183H331L309 81C292 0 308 -12 326 -12C350 -12 421 24 483 97ZM374 387C370 363 356 291 345 261C315 193 181 50 139 50C124 50 110 71 110 118C110 224 153 331 218 379C238 394 271 402 301 402C329 402 359 394 374 387Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,5.993,3.132)"><path d="M389 0V32C297 38 291 46 291 118V635C234 613 175 595 109 583V556L161 554C203 552 207 547 207 497V118C207 46 201 38 110 32V0H389Z"></path></g><g transform="matrix(.013,0,0,-0.013,10.939,0)"><path d="M114 412C81 412 58 388 58 355C58 321 81 297 113 297S169 321 169 355C169 388 145 412 114 412ZM95 130C70 130 46 114 46 88C46 72 54 65 59 64C93 56 121 33 121 -3C121 -41 93 -68 45 -88L56 -118C117 -99 186 -56 186 22C186 91 131 130 95 130Z"></path></g><g transform="matrix(.013,0,0,-0.013,20.441,0)"><path d="M300 -147C201 -63 143 98 143 270S200 602 300 686L282 710C136 610 70 450 70 271V270C70 89 136 -72 282 -170L300 -147Z"></path></g><g transform="matrix(.013,0,0,-0.013,24.939,0)"><path d="M412 140C382 77 369 73 315 73H129L270 222C362 320 402 379 402 466C402 571 322 635 234 635C177 635 130 609 99 576L42 495L64 475C90 514 133 568 201 568C274 568 318 519 318 435C318 349 255 267 193 193C144 135 87 78 32 23V0H405C417 45 427 89 440 131L412 140Z"></path></g><g transform="matrix(.013,0,0,-0.013,31.179,0)"><path d="M275 270C275 450 212 609 64 710L45 686C145 604 203 442 203 270S147 -63 45 -147L64 -170C213 -68 275 89 275 270Z"></path></g><g transform="matrix(.013,0,0,-0.013,40.035,0)"><path d="M645 631C614 643 545 666 457 666C215 666 23 519 23 283C23 90 158 -16 337 -16C412 -16 489 2 522 10C543 39 590 127 606 167L580 181C519 89 459 18 348 18C201 18 122 136 122 287C122 464 244 632 435 632C544 632 602 595 608 472L639 475C643 526 645 581 645 631Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,48.654,3.132)"><path d="M615 650H141L132 618C223 612 227 607 212 526L136 123C122 42 112 38 27 32L18 0H522C539 33 580 135 592 166L558 179C536 139 512 100 486 75C454 48 420 41 345 41C287 41 252 42 237 55C221 68 220 100 231 158L261 316H357C455 316 455 309 455 235H489L529 437H494C468 366 460 360 369 360H269L305 565C315 609 316 611 357 611H450C525 611 535 599 548 578C559 556 561 526 560 482L595 486L615 650Z"></path></g></svg> versus <span class="nowrap"><svg height="9.14241pt" id="M276" style="vertical-align:-3.1815pt" version="1.1" viewbox="-0.0498162 -5.96091 11.0615 9.14241" width="11.0615pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M483 97L471 123C436 91 401 65 392 65C388 65 384 74 390 106C414 239 444 378 457 429L455 433C444 433 429 436 416 439C392 444 368 448 344 448C281 448 204 415 152 376C71 315 23 205 23 103C23 21 57 -12 85 -12C114 -12 149 6 185 34C231 70 285 119 329 183H331L309 81C292 0 308 -12 326 -12C350 -12 421 24 483 97ZM374 387C370 363 356 291 345 261C315 193 181 50 139 50C124 50 110 71 110 118C110 224 153 331 218 379C238 394 271 402 301 402C329 402 359 394 374 387Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,5.993,3.132)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g></svg>.</span></div>

Discrete Dynamics in Nature and Society

fig4

Figure 4

Figure 4: Pricing of European Currency Options with Uncertain Exchange Rate and Stochastic Interest Rates 