Pricing FX and Index Options

Discussion in 'Options' started by FormGuide, Oct 28, 2006.

  1. Hi guys, Im actually a fixed income options trader but I am looking to trade options in FX and indicies just for my own fun really, but need to know a few things.

    What parameters are used in FX and equities? Obviously Vol, time and underlying, but what about interest and dividends? These are needed in equities right? What about FX? And where can I get values on these last two parameters?

    Also does anyone know where I can get a good but free option pricer for the two different underlyings?

  2. MTE


    Index options use risk-free interest rate, such as fed funds, and the dividend yield (not sure where you can find the dividend yield for various indices, though, as I get it directly in my platform).

    FX options use the risk free rates of the two currencies. E.g. if you have an option on EUR then the US interest rate will be equivalent to the interest rate in index options and the EUR interest rate will be equivalent to the dividend yield.

    For index options check out CBOE's calculator, which will automatically fill in the yield and interest rate fields when you input the symbol or search these boards for links to other free calculators.

    Don't know any links to free fx option calculators, but you can check out Hoadley's tools.
  3. Thanks for the info mate