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Insurance Value of International Reserves: An Option Pricing Approach

Author/Editor: Lee, Jaewoo
Authorized for Distribution: September 1, 2004
Electronic Access: Free Full Text (PDF file size is 723KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
Series: Working Paper No. 04/175
Subject(s): Insurance | Reserves | Prices
Author's keyword(s): reserves | insurance | option | underlying asset
 
English  
    Published:   September 1, 2004        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1752004   Pages:   27
    Price:   US$15.00
       
     
Please address any questions about this title to publications@imf.org.