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Insurance Value of International Reserves: An Option Pricing Approach
Author:
Mr. Jaewoo Lee
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Series:
IMF Working Papers
Volume/Issue:
Volume 2004: Issue 175
Language:
English
Publication Date:
01 Sep 2004
DOI:
https://doi.org/10.5089/9781451858785.001
ISBN:
9781451858785
ISSN:
1018-5941
Pages:
28
Keywords:
WP; coverage ratio; put option; option price; interest rate; Reserves; insurance; option; underlying asset; insurance value; reserve coverage ratio rise; market value; coverage ratio decrease; reserve holding; Asset valuation; Asset prices; International reserves; Options; Asia and Pacific; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund