Valuing an option on the stock of a multinational firm with foreign currency debt
by Mazhar A. Siddiqi
International Journal of Bonds and Derivatives (IJBD), Vol. 1, No. 1, 2013

Abstract: Companies appear to issue foreign currency denominated debt to hedge exchange rate risk or to profit from a lower expected borrowing rate in foreign currency. In this paper, I combine an existing formula for the value of an option to exchange asset with Monte Carlo simulation to obtain the value of an option on the stock of a multinational corporation that has foreign currency debt. I also calculate the partial differentials for this option to investigate the marginal effects of various variables as the option moves from being well out of the money to being deep in the money.

Online publication date: Fri, 18-Jul-2014

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