Fixed income Asian options are frequently adopted by companies to hedge interest rate risk. Having a payoff structure depending on the cumulative short-term rate makes them particularly informativeabout interest rate volatility risk. Based on a joint dataset of bonds and Asian interest rate...

There is strong empirical evidence that long-term interest rates contain a time-varying risk premium. Options may contain valuable information about this risk premium because their prices are sensitive to the underlying interest rates. We use the joint time-series of swap rates and interest rate...