Showing 1 - 6 of 6
An explicit pricing formula for inflation bond options is proposed in the Jarrow-Yildirim model. The formula resembles that for coupon bond options in the HJM model.
Persistent link: https://www.econbiz.de/10005621203
Even if the name futures indicates a simple instrument, bond futures are complex. Several special features are embedded in the instrument. In particular the future is not written on one specific bond but on a basket of bonds, from which the short side can deliver the cheapest. This paper focuses...
Persistent link: https://www.econbiz.de/10005621461
A simple exotic option (floor on rolled deposit) is studied in the shifted log-normal Libor Market (LMM) and Gaussian HJM models. The shifted log-normal LMM exhibits a controllable volatility skew. An explicit approach is used for both models. Using approximations the price in the LMM is...
Persistent link: https://www.econbiz.de/10005622112
Bond futures are liquid but complex instruments. Here they are analysed in a one-factor Gaussian HJM model. The in-the-model delta and out-of-the-model delta and gamma are studied. An explicit formula is provided for in-the-model delta. The out-of-the-model delta and gamma are equivalent to...
Persistent link: https://www.econbiz.de/10005623541
An approximation approach to Constant Maturity Swaps (CMS) pricing in the separable one-factor Gaussian LLM and HJM models is presented. The approximation used is a Taylor expansion on the swap rate as a function of a random variable which is intuitively similar to a (short) rate. This approach...
Persistent link: https://www.econbiz.de/10005619559
A simple and fundamental question in derivatives pricing is the way (contingent) cash-flows should be discounted. As cash can not be invested at Libor the curve is probably not the right discounting curve, even for Libor derivatives. The impact on derivative pricing of changing the discounting...
Persistent link: https://www.econbiz.de/10005260236