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:	1994-03
Authors:	Miltersen, K. ; Sandmann, K. ; Sondermann, D.
Institutions:	University of Bonn, Germany
Subject:	Log-normal \| nominal-compounding rates \| Heath-Jarrow- Morton model

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Extent:	application/pdf
Series:	Discussion Paper Serie B.
Type of publication:	Book / Working Paper
Language:	English
Classification:	G13 - Contingent Pricing; Futures Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004968292