I am working on a project and I am trying to evaluate an FX option with EUR/GBP underlying. As the EURIBOR is negative, how can I do the pricing? I know I have to transform the interest rate, to switch to a continous interest rate (so I should apply log).

Please help me on this. Also, if you have codes for Black-Scholes, Vanna-Volga, Heston, I would really appreciate if you could share them with me.

Thank you!


It shouldn't be a problem. You are taking log(1+rate) not log of rate itself.

  • $\begingroup$ Thank you very much! But doesn't this slightly change the Black-Scholes formula? $\endgroup$ – user27622 Apr 24 '17 at 14:31
  • $\begingroup$ @user27622 look at the formula ... no: it does not matter. It would be a problem if the FX spot were negative. Rates can be arbitrary real numbers. $\endgroup$ – Ric Apr 24 '17 at 15:14

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