We describe the Bond Market Model, a multi-factor interest rate term structure model, where it is possible to price with Black-like formulas the three classes of over-the-counter plain vanilla options. We derive the prices of caps/floors, bond options and swaptions. A comparison with Libor...

In this paper, using the exit-time statistic, we study the structure of the price variations for the high-frequency data set of the bid–ask Deutschemark/US dollar exchange rate quotes registered by the inter-bank Reuters network over the period October 1, 1992 to September 30, 1993. Having...

In this paper we perform a quantitative check of long term correlations and multi-affinity in Deutsche Mark/US Dollar exchange rates using high frequency data. We show that the use of business time, i.e., the ranking of the quotes in the sequences, eliminates most of the seasonality in...

A quantitative check of efficiency in US dollar/Deutsche mark exchange rates is developed using high-frequency (tick by tick) data. The antipersistent Markov behavior of log-price fluctuations of given size implies, in principle, the possibility of a statistical forecast. We introduce and...

We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant to the problem of pricing derivatives. We compare our...

We show an analytical approach to sticky cap and sticky floor according to the Bond Market Model, a recently introduced version of the multi-factor Gaussian Heath-Jarrow-Morton model that is particularly easy to manage and calibrate. This solution allows having a comprehensive approach even for...

We introduce a criterion how to price derivatives in incomplete markets, based on the theory of growth optimal strategy in repeated multiplicative games. We present reasons why these growth-optimal strategies should be particularly relevant to the problem of pricing derivatives. Under the...

We find an analytical solution of the Vol-Bond according to the multi-factor Gaussian Heath-Jarrow-Morton model. We show how to calibrate the model with market data. This solution allows complete (and fast) control of this class of derivatives and of their sensitivities.

In this paper we address the problem of the valuation of Bermudan option derivatives in the framework of multi-factor interest rate models. We propose a solution in which the exercise decision entails a properly defined series expansion. The method allows for the fast computation of both a lower...