The purpose of this paper is to provide a
new set of tools for policy makers at central banks. Based on the Garman-Kohlhagen
formula for currency options, this research extends it with the
Taylor-rule expression used for inflation targeting,thus obtainingthe
corresponding Call and Put options and the first and higher-degree partial
derivatives known as “Greeks” for key variables such as the policy target
domestic interest rate and the output gap.
Cite this paper
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