Insurance Value of International Reserves : An Option Pricing Approach

Author/Editor:

Jaewoo Lee

Publication Date:

September 1, 2004

Electronic Access:

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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:

English

Publication Date:

September 1, 2004

ISBN/ISSN:

9781451858785/1018-5941

Stock No:

WPIEA1752004

Format:

Paper

Pages:

28

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