Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates

We derive a unified model which gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero-coupon bonds. The crucial assumption is that forward rates with a compounding period that matches the contract, which we want to price, is log-normally distributed. Moreover, this assumption is shown to be consistent with the Heath-Jarrow-Morton model for a specific choice of volatility.

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Year of publication:	1996-03-01
Authors:	Miltersen, Kristian R. ; Sandmann, Klaus ; Sondermann, Dieter
Institutions:	Sonderforschungsbereich Information und die Koordination Wirtschaftlicher Aktivitäten <Bonn>
Subject:	Statistik \| Wirtschaftsstatistik \| Economic statistics \| Stochastik \| Log-lineares Modell

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Extent:	277504 bytes 19 p. application/pdf
Series:	Universität Bonn - Sonderforschungsbereich 303 - Puiblikationen Discussion Paper ; 1994, B-308
Type of publication:	Book / Working Paper
Language:	English
Classification:	G13 - Contingent Pricing; Futures Pricing ; Corporate finance and investment policy. Other aspects ; Individual Working Papers, Preprints ; No country specification
Source:	USB Cologne (business full texts)

Persistent link: https://www.econbiz.de/10005841373