Bond markets are over the counter markets, plagued with illiquidity, price volatility, mispricing, sovereign restructuring issues and other difficulties. We price powered bonds based on an interest rate term structure of a stochastic strings model. Power exchange bond options resolve issues...

We study power exchange options written on zero-coupon bonds under a stochastic string term-structure framework. Closed-form expressions for pricing and hedging bond power exchange options are obtained and, as particular cases, the corresponding expressions for call power options and constant...