Working Paper
Noise Traders' Trigger Rates, FX Options, and Smiles
A contingent claims valuation model which allows to highlight the implications of program trading in spot markets for the pricing of European-style foreign currency options and for the volatility strike structure implicit in these contracts is devoloped.
Key Words
- Foreign Currency Options
- GARCH model
- Implicit Price Barriers
- Noise trading
- Volatility Smile