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5feira
Topic Author
Posts: 3
Joined: August 29th, 2017, 7:57 pm

Dividend Yield versus Foreign Interest Rate

September 15th, 2017, 6:00 am

If I use my Heston spreadsheet for stocks and replace the dividend yield rate by the foreigner rate, will it return me the right prices for fx options?
I mean, if I don't change the formula at all and just input the foreigner rate in the model (instead of dividend yield), would it be right?
Thanks!
 
frolloos
Posts: 752
Joined: September 27th, 2007, 5:29 pm
Location: Netherlands

Re: Dividend Yield versus Foreign Interest Rate

September 23rd, 2017, 7:48 am

Yes that should work. But with interest rates possibly being negative in contrast to positive dividend yields you might want to double check no issues there.
 
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outrun
Posts: 4573
Joined: January 1st, 1970, 12:00 am

Re: Dividend Yield versus Foreign Interest Rate

September 23rd, 2017, 8:29 am

You should check it, set the volatility and mean reversion rate of the volatility process to zero which would reduce it to a Black & Scholes equivalent.