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FX Option Question
This is a question which I encountered at an interview for FX Options. I was never told the right answer. So just wondering what the answer is:For options on USD/JPY, is USD call or put more expensive? Why? Thanks.
FX Option Question
so i assume its not simply a technical issue and when we say "expensive" we are talking about the price of risk ie implied vol. off the top of my head I don't what the answer is as I always though the fx markets liked USD/JPY had fewer biases in them comapred to say IDR/USD or equities. I shall put my thinking hat on and see if I can up with anything.
knowledge comes, wisdom lingers
FX Option Question
Hmm, so the answer is that they are equally expensive coz the wings are symmetric?
FX Option Question
If you go to USDJPY <Crncy> OVDV you'll see that USD puts have higher implied vols than the USD calls with the same delta (this can be seen as JPY being the funding currency of choice because of low interest rates, and therefore JPY appreciation being linked to risk trades suffering => skew); of course JPY rates are not much lower than USD rates up to 6m these days, but this is (was) the usual pattern.