We use the extended CIR model to value interest rate caps and floors. The extension allows arbitrary initial term structure, in the spirit of Hull and White, a crucial feature since we show that the pricing of the considered contingent claims improves dramatically after taking into account the...

Single factor interest rate models with constant coefficients are not consistent with arbitrary initial term structures. An extension which allows both arbitrary initial term structure and analytical tractability has been provided only in the Gaussian case. In this paper, within the context of...

The valuation of financial instruments in which both credit risk and interest rate risk are taken into account is an outstanding task for financial institutions. In this paper, we propose an affine-reduced model to deal with this topic. We show that this model offers analytical tractability as...