We use the Garman-Kohlhagen model to compute the hedge and price of a participating forward contract on the US dollar that is written by a Turkish Bank. The algorithm is computed using actual market data and a weekly updated hedge is computed. We note that despite a weekly update and many assumptions made on the volatility and the interest rates the model gives a very reasonable hedge.

Subject of the submitted thesis is the issue of currency options. The aim is the detailed analysis of currency options forcefully on dealing, characteristics, methods of pricing and their use for hedging strategies. The first part of the thesis presents an introduction into the option theory. The second part is about dealing, pricing and arbitrage relationships of currency options. In this part are two option pricing model extracted -- the binomial options pricing model for pricing currency options and the Garman-Kohlhagen model for pricing European currency options. In the third part is an example for a currency put option hedging strategy.