This article focuses on pricing Eurodollar futures options using the single‐factor Black, Derman, and Toy (1990) term structure model with particular emphasis on yield curve smoothing. Of the various approaches, the maximum smoothness forward rate approach developed by Adams and van Deventer...

Recent research provides considerable evidence that correlations between assets change significantly over time and diversification benefits of correlations may vary substantially based on the time-varying measure of correlation used for different asset types. Our study evaluates and compares...