October 20th, 2011, 2:18 pm
Recently I have been reading Lipton's Mathematical Methods for Foreign ExchangeMathematical Methods for Foreign Exchange. Despite the archaic and uncommon notation, it talks about modeling FX and rates dynamics all at once, which is something I have not seen elsewhere. If we want to build such a model, we would at least need 3 factors (domestic and foreign rates and FX rate). I am wondering how FX option pricing is done in the industry, anyone can shed some light?Also, what do you think about Wystup's FX Options and Structured Products? There are so few reviews.