Options pricing Method                  Options are used to manage risk arising from uncertain events in future in foreign exchange markets. Currency option is an instrument that gives the holder the right but not the obligation to buy or sell the foreign currency. There are two types of standardized currency options, call option which gives you the write to buy and a put option which gives you the right to sell. The seller of an option is called the writer of the option; he is compensated by charging a premium for the option he writes. The future exercise date and price of an option are predetermined and include an expiration time. Option’s current value consists of two elements, intrinsic value also known as the fundamental value (the difference between the spot and strike price) and time value. Options with positive intrinsic and time value are called in the money. A call option is said to be in the money when the strike price is below the spot price and a put option is in the money when the strike price is higher than the spot price. Different factors determine the time value of an option, such as the spot price, the expected volatility of currency, the exercise price, expiration time and interest rate differences between nations. There are number of models that could be used to price options.                Tthe binomial options pricing model was developed in 1979 by Cox, Ross and Rubinstein. This model provides a mathematical method for the pricing of options. Garmen-Kohlhagen model developed in 1983 utilizes certain interest rates to price options. This model assumes that the rate follows a log normal process.       Sources   -        Foreign Exchange options en.wikipedia.org/wiki/Foreign_exchange_option - 47k -        Currency Options www.iimcal.ac.in/Community/Finclub/dhan/dhan7/CURRENCY%20OPTIONS.pdf – -        Lecture Notes from Finance 370