A SNOWBALL CURRENCY OPTION

GYOOCHEOL SHIM 한국산업응용수학회 2011 Journal of the Korean Society for Industrial and A Vol.15 No.1

I introduce a derivative called “Snowball Currency Option” or “USDKRWSnowball Extendible At Expiry KO” which was traded once in the over-the-counter market in Korea. A snowball currency option consists of a series of maturities the payoffs at which are like those of a long position in a put option and two short position in an otherwise identical call. The strike price at each maturity depends on the exchange rate and the previous strike price so that the strike prices are random and path-dependent, which makes it difficult to find a closed form solution of the value of a snowball currency option. I analyze the payoff structure of a snowball currency option and derive an upper and a lower boundaries of the value of it in a simplified model. Furthermore, I derive a pricing formula using integral in the simplified model.

원/달러 통화옵션의 기초자산 모형에 대한 상세분석

장운욱 한국재무관리학회 2017 財務管理硏究 Vol.34 No.1

본 연구에서는 원/달러 통화옵션의 기초자산 모델링에 필요한 확률적 변동성(stochastic volatility) 요인의 특성, 기초자산 수익률과 변동성 간의 레버리지 채널(leverage channel)의 특성, 그리고 점프(jumps) 모형의 특성을 실증적으로 밝히는 데 있다. 이를 위해 상세분석(specification analysis)이 가능하도록 확률적 변동성 요인 및 레버리지 채널의 수를 복수로 설정할 수 있고 여러 점프 모형을 손 쉽게 결합할 수 있는 옵션가격 평가모형을 실증분석에 적용하였으며, 장외 원/달러 통화옵션의 자료를 이용하여 금융위기 이전 기간 및 금융위기 기간에 각기 다르게 나타난 기초자산 모델링의 특성에 대해 분석하였다. This paper investigates empirically the modelling issues for the stochastic processes underlying Korea Won/US Dollar OTC currency options. Specifically, we try to answer the questions that how many of stochastic volatility factors and leverage channels should be modelled? What types of jumps model describe best the characteristics of underlying asset process of the Korea Won/ US Dollar currency options. In the empirical analysis, we divide sample period into before the global financial crisis and crisis period and report the model performance of each period.

한국의 통화옵션시장과 통화선물시장에서 옵션가격 하한조건을 이용한 차익거래 기회에 관한 분석

태석준(Tae, Suk-Joon) 서원대학교 미래창조연구원 2013 과학과 문화 Vol.9 No.2

This paper examines pricing efficiency of the currency option market in Korea using lower boundary conditions for option prices. This study analyzes the option lower boundary conditions calculated from currency futures prices and arbitrage opportunities in the U.S. dollar options and U.S. dollar futures markets in Korea. Lower boundary condition tests are performed for both call and put options. The results of this study show that there were violations of lower boundary conditions and arbitrage opportunities existed not only for futures companies but also for investors in the U.S. dollar options and futures markets during the period under study. However, the frequency of violations is low. If we consider the low trading volume of U.S. dollar options during the period under study, it appears that profitable arbitrage opportunities were limited.

키코 통화옵션계약의 공정성에 관한 연구 : 대법원 2013.9.26 선고 2011다53683(본소), 2011다53690(반소) 판결을 중심으로

김창희 법무부 2013 선진상사법률연구 Vol.- No.65

The plaintiff, a machine exporter, entered into KIKO currency option contracts in 2007 with defendant banks under appehension of a fall in the exchange rate between the U.S. dollar and the Korean won. According to the contracts, the plaintiff gave call option to the banks in exchange for put option offered from them. The plaintiff, who suffered heavy losses on account of a sudden rise in the exchange rate after 2008, brought a suit against the banks for damages and unjust enrichment. The plaintiff argued that the KIKO contracts were unfair to the company and unsuitable to adequately hedge against fluctuations in the exchange rate, and that the banks failed to fully explain the KIKOs and their potential risk. Among the above major controversial arguments, this paper touches upon only the issue of unfairness. The unfairness argument claimed by the plaintiff is that the value of call options the company provided to the banks was highly greater than that of put options the company received. Thus, the KIKO contracts are unfair and unjust under Section 104 of the Korean Civil Law since the payment and the benefit in return for the payment are extremely unbalanced. However, the Korean Supreme Court rejectd the plaintiff's unfairness argument. First, the Court regarded the most part of spread between call options and put options as bank charges. It opined that most bank charges are the credit risk charge and hedge cost, and that the differences between the charge and the cost are not excessive. Second, the Court contended that, if the charge rate for KIKOs was calculated on the basis of call option's dollar amounts, the margin rate of KIKOs was not higher than that of other service charges of banks. Third, the Court concluded that in consideration of potential additional benefits which the plaintiff might have obtained, the margin cannot be regarded as unjust only because of its exceeding discrepancies in the margin between the value of call option and that of put option. This paper examines in detail the Court's reasoning that the KIKOs are not unfair, and in case, utilizes some quantitative approaches to prove unfairness of the KIKOs. Finnally, it is found that the Court reached a wrong conclusion by misunderstanding the amount of cost, the way to estimate margin rate, and the additional advantages for the plaintiff under the KIKOs. 공기계류 수출기업인 원고는 2007년경 환율 하락을 예상하여 피고은행들과 사이에 키코 통화옵션계약을 체결하였다. 주된 내용은 원고가 피고로부터 달러 풋옵션을 제공받고 그 대가로 피고에게 현금 대신 달러 콜옵션을 제공하는 것이었다. 예상과 달리 2008년 이후 환율이 급등함에 따라 원고는 제공한 콜옵션으로 인하여 막대한 손해를 입게 되었다. 원고는 피고들을 상대로 손해배상 및 부당이득반환소송을 제기하였다. 원고의 주요 주장은, 계약 내용이 불공정하고, 상품 내용이 외한 헤지에 적합하지 아니하며, 은행들이 계약내용에 관하여 충분한 설명을 하지 아니하였다는 것 등이다. 이 논문에서는 계약의 공정성 문제만을 다루었다. 공정성 문제란, 키코계약은 급부와 반대급부가 현저히 균형을 잃은 계약으로 민법 제104조에 위반되어 무효라는 것이다. 대상판결에서 법원은 공정성 문제에 관하여 원고의 주장을 배척하였다. 그 이유로는, 첫째, 콜옵션과 풋옵션 사이의 가치 차이는 은행의 수수료인데, 그 중 신용위험비용과 헤지비용이 큰 비중을 차지하므로 수수료의 크기만 보고 그 수수료가 과다하다고 할 수 없고, 둘째, 수수료율을 콜옵션 계약금액을 기준으로 계산하면 은행의 다른 서비스와 비교하여 높다고 할 수 없으며, 셋째, 원고는 풋옵션 가치 외에 추가적으로 얻는 이익이 있으므로 콜옵션 가치와 풋옵션 가치의 차이가 크다는 이유만으로 불공정한 계약이라고 할 수 없다는 것이다. 이 논문에서는 그러한 판단의 정당성에 관하여 검토하였다. 검토 결과 신용위험비용과 헤지비용의 크기, 수수료율 평가기준의 설정, 기업의 추가적인 이익의 존부 등 주요쟁점에 관하여 법원이 구체적 사정을 오해하거나 충분히 심리하지 아니함으로써 타당성을 잃은 판단을 하였다는 결론에 이르게 되었다.

원/달러 장외통화옵션시장에서 내재변동성의 정보효과

강병진 ( Byung Jin Kang ) 한국파생상품학회 2011 선물연구 Vol.19 No.2

This paper investigate the information content of Implied volatilities derived from KHW/USD OTC currency options. First we examined the explanatory power of Implied volatilities in forecasting future realized volatilities of the spot exchange rates. Next, we examined the dynamic properties of volatility spreads, the difference between Implied volatilities and realized volatilities, observed In KRW/IJSI) currency option markets. Using the sample data from January 2006 Through March 2010, we first find that even though the implied volatilities have a little explanatory power In forecasting future realized volatilities, they don`t improve the information content of simple historical volatilities at all. Second, this paper finds that during the period before global financial crisis In 2008. the implied volatilities are consistently lower than the realized volatilities. This suggests that we cannot exclude the possibility of risk seeking behavior of the investors in KRWJUSD OTC currency option markets at that time. Finally, from the comparative analysis with KOSPI 200 index options for the same sample period, we confirmed that our empirical results are uniquely observed only in KRW/USD OTC currency option markets.

외환의 심리적 장벽과 통화옵션의 내재변동성

신동훈 ( Dong Hoon Shin ),김선현 ( Seon Hueon Kim ),김호준 ( Ho Joon Kim ),정대휘 ( Dae Hwi Jung ) 한국파생상품학회 2014 선물연구 Vol.22 No.2

In this paper, we examine the existence of the psychological barriers in three foreign exchange rate, won/dollar, euro/dollar, yen/dollar, and test that the psychological barriers effect to the implied volatilities of the FX options. For each exchange rate, the existence and spots of the psychological barriers are estimated from roughly 10 years data for each currency rate, and GARCH (1,1) model was applied to observe the momentum effect about the mean and variance of the conditional returns, and the implied volatility of the FX-options for each currency rate near the psychological barriers. Since this effect is more clearly observed on the implied volatility data, this fact supports that psychological barriers affects to the price of the FX-options.

키코(KIKO)거래의 법률관계

전경근 梨花女子大學校 法學硏究所 2010 법학논집 Vol.14 No.4

기업들이 환율의 하락으로 인한 손실을 헤지하기 위하여 체결한 통화옵션인 키코 계약이 예상하지 못한 환율의 상승으로 인하여 기업에서 손실을 끼치는 결과를 가져왔다. 그리하여 기업들은 키코통화옵션이 환위험을 헤지하기에 적절하지 않았다는 것을 이유로 많은 소송을 제기하였으며, 몇 건의 결정이 내려진 이후에 이 논문에서 연구의 대상으로 삼은 판결이 선고되었다. 이 판결에서는 키코통화옵션계약이 환위험을 회피하는데 적합한 것이었는지 여부, 통화옵션계약이 불공정한 약관을 사용하여 체결한 계약으로서 무효인지 여부, 통화옵션계약이 신의성실의 원칙에 반하여 무효인지 여부, 통화옵션계약을 사기 또는 착오를 이유로 취소할 수 있는지 여부가 다루어졌다. 그밖에 사정변경에 의한 계약해지의 가능성에 대해서는 이 판결에서 다루고 있지 않지만 종전에 내려졌던 결정에서는 중요한 쟁점의 하나였으므로 이 논문에서도 사정변경의 원칙을 적용할 수 있는지를 살펴보았다. 대상판결은 키코통화옵션 계약에 약간의 문제가 있기는 하지만 계약 자체를 무효로 할 수 있는 사유가 존재하지 않는다는 이유로 원고의 청구를 모두 기각하였다. 이러한 대상판결의 결론은 키코 통화옵션계약의 외형적인 부분을 대상으로 판단할 때에는 수긍할 수 있지만, 옵션의 설정 등 계약의 체결이전에 금융기관이 상품을 설계하는 과정을 고려한다면 환위험을 헤지하려고 한 기업이 매수하기에는 적합하지 않는 부분이 있다고 생각된다. 따라서 앞으로 키코사태와 같은 법률문제가 발생하지 않도록 하기 위한 법리의 구축이 절실히 필요할 것으로 생각된다. Because of the situation of Sub-Prime Mortgage in USA, exchange rate changed very extremely. Before 2007 exchange rate almost went down. Since many corporations did not want to sustain a loss because of exchange rate, many of them bought futures, but they had to pay a lot of commission. Therefore they wanted to buy some financial commodity. In 2007, many Korean export companies entered into KIKO trades to protect themselves against the threat of an appreciating Won reducing their profits on their exports. KIKO(Knock In & Knock Out) is a kind of currency option. The structure of this currency option is like that: If exchange rate goes down lower tranche the contract is nullified. On the contrary if exchange rate goes upon upper trance, knock in option takes effect and company has to sell foreign exchange. To reduce the upfront hedging costs, Korean corporations purchased Won call options and sold Won put options, frequently with knock-out features to further reduce hedging costs. But The Korean Won depreciated significantly in 2008 and the companies get big losses. The companies commenced law suits against the banks. The companies sued banks in court to invalidate or terminate their KIKO contracts and sought for damages based on various legal grounds including fraud, mistake, mis-selling and violation of Regulation of Standardized Contract Act. The courts have been made decisions in favor of companies or banks. In this case court made decision in favor of bank. I think KIKO currency option is not suitable to hedge rick of exchange fluctuations. So KIKO currency option is examined in the aspect of financial engineering. And the new system to protect companies in exchange trade is established in the future.

파생금융상품을 이용한 효율적 환위험 관리기법에 관한 연구

윤창현(Chang-Hyun Yun) 한국무역학회 2003 무역학회지 Vol.28 No.1

Finns facing exchange rate risk can hedge their risk using derivative products. Especially, currency options can also be used as good hedging tools. Finns sometimes can attain various kind of option-like rights when they practice and implement normal business. One example of those rights is import license under quota system. We show that such a license is a kind of currency put option under the condition that domestic industry is perfectly competitive. The same type of license is an exotic currency option, i.e., put option with disappearing deductible under domestic monopoly. We value this license using Cox-Ross risk neutral valuation method and show that firm can effectively use these rights to hedge the exchange rate risk.

키코(KIKO) 사건에서의 사정변경의 원칙

사동천 ( Dong Cheon Sha ) 한양대학교 법학연구소 2014 법학논총 Vol.31 No.2

Supreme Court does not tend to apply the principle of changing circumstances in contract easily. It means, the principle of changing circumstances can be recognized with exception of Contract Compliance Principle, but not in principle. In KIKO Case, the point was that whether there were changes in the objective situation or not. Inherent variability of exchange rate that could be predicted at the time of signing currency option contracts can be strayed from the range of knock-in and knock-out in predictable range. This flexibility in the range only could be the objective situation from basic of contract because of the characteristic of currency option contracts, you can not tell there is a change. However, if inherent variability show the new one that stray foreknowledge possibility range at contract by external situation, this kind of new flexibility can be consider as a change of the objective situation. Thus, decision of the court that dismissed that inherent variability of exchange rate is already premised in currency option contracts has a possibility of reconsideration. A precedent says potential fluctuations of inherent variability itself also already premised like exchange rate fluctuation through process of currency option contracts because inherent variability of exchange rate in Monami Case is mutually interlocked with changes in market prices of options. This decision can be agreed, but inherent variability of exchange rate that is related with price fluctuations of option market would rather be considered that it itself is included in objective circumstances. Related to foresight possibility of international financial crisis in Kiko Case, the court thinks that skyrocketing exchange rate due to external shock expanded inherent variability of exchange rate, but they don’t think the speedy rise of exchange rate has foreknowledge possibility. However, because of the characteristic of currency option contracts, sharp rise that does not have foreknowledge possibility is taken in inherent variability, and inherent variability is the content itself of currency option contracts. According to precedent, if sudden rise of exchange rate was arose because of international financial crisis without foreknowledge possibility, they amplified inherent variability by situation without foresight possibility. In this, an object of range without possibility of foresight is the range that exceeds predicted foreknowledge possibility.

환율변동성의 분석을 통한 헤지 방안

정남기 ( Namki Chung ) 한국질서경제학회 2010 질서경제저널 Vol.13 No.3

Through this study was analyzed the volatility of the foreign exchange market in Korea to determine the adequacy of barriers of currency options. First, ARCH-test was performed to determine if volatility in korean foreign exchange market can be analyzed through the ARCH model. As the result, ARCH model is a appropriate tool to measure the volatility of the foreign exchange market in Korea. The volatility of the foreign exchange market in Korea was therefore analyzed through kind of ARCH models. According to the results of analysis by GARCH-model, the volatility of korean foreign exchange market is high and the trend is expected to be continued. And according to analysis by EGARCH-model, the volatility of foreign exchange rate is higher as increasing foreign exchange rate than as decreasing. And the currency options, which are designed against increasing foreign exchange rate, do not have the appropriate means to hedge against the risk of volatility of foreign exchange rate, because low stability. In the market with high exchange rate volatility as korean foreign exchange market, importer and exporter do hedge against the risk of volatility of foreign exchange rate better by relatively safe currency futures in exchange market or forward trading than by derivatives as currency options.