Variable naming can be ambiguous in ql.GarmanKohlagenProcess

[BattleNet996]

I'm currently using the ql.GarmanKohlagenProcess method to conduct some option pricing research. I found that the parameters of this method might be ambiguous, which consists of initialValue, foreignRiskFreeTS, domesticRiskFreeTS, volTS

In fact, In practice, our definitions of foreign and local currencies are contextualized. For example, how to define the foreign and domestic currency in the pair USDCNY? Traditionally, the USD should be foreign ccy, and CNY should be domestic ccy. I'm wondering how do you define and set the parameters.

[boring-cyborg[bot]]

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[sweemer]

In the standard definition of a currency pair, the first currency is the foreign one and the second currency is the domestic one, so for USDCNY (a.k.a. USD/CNY) the foreign currency is USD and the domestic currency is CNY as you have correctly stated.

But it is also possible to use inverted currency pairs if your use case requires it. In short, the answer to your question is that you can use either a currency pair or its inverse as long as the foreign TS, domestic TS, and spot rate are consistent with each other.

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