FX and DX: volatility events and the bid-ask spread
In a previous article, we introduced a numerical pricing process for the US Dollar Index (DX) futures contract, an instrument composed of six FX products (see box) formulated in such a way that it demonstrates convexity. In this discussion, we extend the use of the model to provide insight into the effect of event-driven volatility spikes on the stochastic component of price (what Redfield referred to as its 'volatility premium'). We propose that uncertainty inherent in the calculation of the
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