The Forex Options Course : self-study guide to trading currency options [PDF]

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The Forex Options Course : self-study guide to trading currency options – Book

Exotic option premiums are priced as a percentage of the amount requested to be received. The trader needs to realize that the premium prices of binary options are not based solely on the standard Black-Scholes model. The Black-Sholes model assumes constant volatility and interest rates, and this is not a real-world condition for options in currencies.

Therefore, coming up with premium prices for binary options is computationally challenging, and there is no single accepted set of equations that generate binary options valuations. In fact, there is a market for competing sources of effective pricing engines. Superderivatives.com is a leading world provider of exotic option pricing and supplies many of the exchanges and firms.

But their equations are not standardized. A firm can, in fact, develop its own pricing engine. This means that the premiums can vary significantly from firm to firm and the trader can’t easily determine whether the premium for a binary option is fair.