Due to the complex prepayment behavior, mortgage contracts and their derivatives are generally priced using Monte Carlo simulations. The typical approach used by the industry, which involves simulating interest rates under the risk-neutral measure and applying a physically measured prepayment...

This paper presents a method for estimating multi-factor versions of the Cox, Ingersoll, Ross (1985b) model of the term structure of interest rates. The fixed parameters in one, two, and three factor models are estimated by applying an approximate maximum likelihood estimator in a state-space...

Currently, when valuing derivative contracts with lattice methods, one often needs different lattice structures for different stochastic processes, different parameter values, or even different time intervals to obtain positive probabilities. In view of this stability problem, in this paper, we...

We examine valuation of interest rate options in multifactor versions of the Cox-Ingersoll-Ross model, including European options on discount bonds, European options on Eurodollar futures, and caps on floating interest rates. Valuation models for options on coupon bonds and coupon bond futures...

Fast closed form solutions using Fourier inversion methods are developed for interest rate options in multi-factor versions of the Cox-Ingersoll-Ross model. The options include European options on discount bonds, European options on Eurodollar futures, and caps on floating interest rates....

This paper evaluates the common practice of setting the strike prices of executive option plans at-the-money. Hall and Murphy, 2000, claim this practice to be optimal since it maximizes the sensitivity of compensation to firm performance. However, they do not incorporate effort and the...

With the recent significant growth in the single-name credit default swap (CDS) market has come the need for accurate and computationally efficient models to value these instruments. While the model developed by Duffie, Pan, and Singleton (2000) can be used, the solution is numerical (solving a...