Insurance Value of International Reserves : An Option Pricing Approach

A quantitative framework is developed to bring forward the insurance motive of holding international reserves. The insurance value of reserves is quantified as the market price of an equivalent option that provides the same insurance coverage as the reserves. This quantitative framework is applied to calculating the cost of a regional insurance arrangement (e.g., an Asian Monetary Fund) and to analyzing one leg of an optimal reserve-holding decision.
Publication date: September 2004
ISBN: 9781451858785
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Topics covered in this book

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Finance , Finance , International - Economics , International - Economics , option , underlying asset , international reserves , reserve holding , external debt , currency crises , reserve holdings , Open Economy Macroeconomics

Summary