Vanilla FX Options User Guide

Value Vanilla FX Options Here

The Vanilla FX Option Pricer allows its user to price a "Plain Vanilla" FX Option, i.e., either a European Call or a European Put.

The Strike (aka Exercise Price) of the option may be specified either:

  • directly, as a Strike Value
  • as a ratio of Strike to the Forward Rate
  • as a Delta Target. In that latter case, the pricer will seek the Strike that corresponds to the specified Delta Target
  • as the "At-The-Money" Strike: either the "At-The-Money-Forward" or the "Zero-Delta Straddle" Strike

Input Page

The input page layout is as follows:

The inputs are:

  • Currency Pair: a drop-down list allowing the user to select the currency pair of the option

  • Payoff Type: a drop-down list allowing the user to select either a Call or a Put option

  • Maturity: a drop-down list allowing to user to select either:

    • a predetermined maturity, ranging from one week to one year

    • a user-input actual exercise date

  • Exercise Date: an input box for the user to input the date in the day, month, year format, only to be used if the selected maturity is "Actual Exercise Date"

  • Moneyness Type: a drop-down list allowing the user to select either:

    • Actual Strike, i.e., an actual value for the option's exercise price

    • Ratio of the Strike to the Forward Rate, i.e., the ratio of the option' strike to the Forward FX Rate

    • Left-Hand-Side Delta (protects option value in the underlying currency). The pricer will automatically adjust the Strike so that the option's Left-Hand-Side Delta be equal to the specified target

    • Right-Hand-Side Delta (protects option value in the numéraire currency). The pricer will automatically adjust the Strike so that the option's Right-Hand-Side Delta be equal to the specified target

  • Exercise Price or Delta: an input box for the user to enter either the desired Strike or the Delta target, depending on the selected Moneyness Type. If no input is provided, then the pricer selects the At-The-Money Strike: either the Forward Rate (if Moneyness Type is not Delta) or the Zero-Delta Straddle Strike (if Moneyness Type is Delta)

Pricing is achieved by clicking on the “Next” button.

Pricing Results

The pricing output is as follows.

 Revalued at Market Close as of: Thu 13 Oct 2011

USDJPY CALL

Currency Pair USDJPY (Japanese Yen per US Dollar)
Option Type USD CALL / JPY PUT
Strike JPY 76.3359 per USD of Notional Amount
Exercise Date Mon 15 Oct 2012
Forward FX Rate JPY 76.3359 per USD of Notional Amount
Volatility 12.8389 %

Premium and Greeks

Option Value (Premium) USD 5.11 = JPY 393.19 per USD 100 of Notional Amount
Option Spot Delta (dValue/dSpot) USD value-sensitivity (LHS): USD 47.15, JPY value-sensitivity (RHS): USD 52.26, per USD 100 of Notional Amount
Option Forward Delta (dFwdValue/dFwd) USD value-sensitivity (LHS): USD 47.43, JPY value-sensitivity (RHS): USD 52.57, per USD 100 of Notional Amount
Option Gamma (d2Value/dSpot2) USD value-sensitivity (LHS): 3.38, JPY value-sensitivity (RHS): 3.99, per USD 100 of Notional Amount
Option Vega (dValue/dVol) USD 0.3983 = JPY 30.6499 per % vol increase per USD 100 of Notional Amount
Option Theta (dValue/dTime) USD 0.0 = JPY -0.44 per calendar day per USD 100 of Notional Amount
Option Vanna (dVega/dSpot) USD 0.0026 = JPY 0.1991 per USD of Notional Amount
Option Volga (dVega/dVol) USD -0.0128 = JPY -0.9918 per USD of Notional Amount 

The “Premium and Greeks” section gives the following information:

  • Value (or Premium): this is the present value of the option, i.e., the premium that the dealer asks her client to pay to buy the option1

  • Delta: this is the sensitivity (first derivative) of the option's value (with respect) to the Spot FX Rate:

    • Left-Hand-Side Delta (LHS) denotes when the option's value is expressed in the underlying currency, for example the USD in a USDJPY Call2

    • Right-Hand-Side Delta (RHS) denotes when the option's value is expressed in the numéraire currency, for example the JPY in a USDJPY Call

  • Gamma: this is the sensitivity of the Delta to the Spot FX Rate

  • Vega: this is the sensitivity of the option's value to the Volatility of the FX Rate

  • Theta: this is the sensitivity of the option's value to the passage of time, otherwise known as the Time Decay

  • Vanna: this is the sensitivity of the vega to the Spot FX Rate

  • Volga: this is the sensitivity of the Vega to the volatility of the FX Rate

All results are given per unit of Notional Amount. The Notional Amount is the amount of the underlying asset concerned by the option, for example “a 1-year $1 million USD call at JPY 73.5”.

This is the option3 to buy $1M worth of JPY at a price of JPY 73.5 per US Dollar, in one year.

The inventory of an options' trader is always denominated in terms of the Greeks. These quantities express the risk to which the trader's portfolio of options is exposed. For the Wikipedia explanation of Greeks, please Click Here

For the Wikipedia explanation of Vanilla FX Options along with a Case Study, please Click Here

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1 Commercial margin considerations left aside

2 As the option's value is expressed in the numéraire, the Left-Hand-Side Delta corresponds to the first derivative of the option value divided by the Spot FX rate with respect to the Spot FX Rate. It is different from the Right-Hand-Side Delta, i.e., the first derivative of the the option value with respect to the Spot FX Rate.

3 i.e., the right, not the obligation

(c) Reference Derivatives 2011

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