Maybe for you if you want to throw money dow the toilet, it's up your alley??? The Black-Scholes-Merton option-pricing model as applied to currency options is also covered, along with an examination of currency futures options. A rise in the funding currency might force liquidation and a subsequent strong move with high volatility. Fill out our online application in just a few minutes. Or one can short the wings if the market is overpricing the regime change risk. However, the deal could also be made profitable by the spot price going nowhere, in which case the put leg would most likely start to fall in price, or the spot might fall at a slower rate than the volatility suggested by the put leg thus opening up for a gamma scalping strategy by delta hedging the further fall in the spot.
In the absence of transaction costs, both the delta-neutral and the straddle trading stratgies lead to significant positive economic profits against the option market, regardless of which volatility prediction method is used.
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The conditional volatility of foreign exchange rates can be predicted using GARCH models or implied volatility extracted from currency options. This paper investigates whether these predictions are economically meaningful in trading strategies that are designed only to trade volatility risk. Download Citation on ResearchGate | Dynamic Volatility Trading Strategies in the Currency Option Market | The conditional volatility of foreign exchange rates can be predicted using GARCH models or implied volatility extracted from currency options. dynamic volatility trading strategies Noticethattheinstantaneousvariance V. t / D ¾ 2. t / followsageometricBrownianMotion, so» is the volatility of variance parameter.