International term structure models

More about the book

International term structure models simultaneously capture the properties of interest rates and currency prices. Due to the increased globalization of the international financial markets the management and pricing of interest rate risks and foreign exchange rate risks have become a major research topic in the finance community. The challenge of currency pricing and currency risk management is to simultaneously account for the properties of the foreign exchange rates and the interest rate term structures within a consistent arbitrage-free model. The approach pursued in this book is based on the exogeneous modeling of state prices. This leads to a substantial simplification when it comes to the modeling of international term structures. The flexibility of the proposed models also helps to explain one of the most puzzling features of currency prices - the forward premium anomaly.