Pricing of Derivative Securities in the Foreign Currency Market

Heath, Jarrow, Morton (1990), (1991), (1992) have suggested a new method for pricing of derivative securities. The method is one of the main parts of financial research now. Heath, Jarrow, Morton have constructed stochastic model by specifying the evolution of forward rates. In the preceding works stochastic models mainly had been constructed by specifying the evolution of short term rates. Amin, Bodurtha (1995) have generalized the Heath, Jarrow, Morton method for valuation of international money market contingent claims. Their stochastic model specifies evolution of forward rates for two currencies and evolution of currency rate. An algorithmic realization of the Amin, Bodurtha method is given in this paper. Some properties of the stochastic model are established. Numerical results are presented.