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(Bakshi, G., and Z. Chen. 1997. “Equilibrium Valuation of Foreign Exchange Claims.”  Journal of Finance  52: 799–826) studied equilibrium valuation for foreign exchange claims in the setting of the two-country Lucas-type economy. In  Bakshi and Chen (1997) , they assumed the money supplies follow two-factor stochastic volatility processes. Based on their model, we add two independent Poisson-type jumps, respectively into the process of money supply in each country. By solving a partial integro-differential equation (PIDE) for currency options, we get closed-form solutions of call currency option prices. Our model is a generalization of  Bakshi and Chen (1997) , and can contain a class of stochastic-volatility jump-diffusion (SVJD) models as special cases.

Equilibrium pricing of currency options under a discontinuous model in a two-country economy