On the Stability of Log-Normal Interest Rate Models and the Pricing of Eurodollar Futures

The lognormal distribution assumption for the term structure of interest is the most natural way to exclude negative spot and forward rates ... The purpose of this paper is to show that the problem with lognormal models result from modelling the wrong rate, namely the continuously compounded rate. ... The paper studies the resulting dynamics of the continuously compounded rate which is neither normal nor lognormal.

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Year of publication:	1995-03-01
Authors:	Sandmann, Klaus ; Sondermann, Dieter
Publisher:	Sonderforschungsbereich Information und die Koordination Wirtschaftlicher Aktivitäten <Bonn>
Subject:	Log-lineares Modell \| Stochastische optimale Kontrolle

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Extent:	239616 bytes 12 p. application/pdf
Series:	Universität Bonn - Sonderforschungsbereich 303 - Discussion Papers ; 1994, B-263
Type of publication:	Book / Working Paper
Language:	English
Classification:	G13 - Contingent Pricing; Futures Pricing ; Corporate finance and investment policy. Other aspects ; Individual Working Papers, Preprints ; No country specification
Source:	USB Cologne (business full texts)

Persistent link: https://www.econbiz.de/10005841393