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A discrete-time two-factor model for pricing bonds and interest rate derivatives under random volatility
Heston, Steven L.; Nandi, Saikat - 1999
This paper develops a discrete-time two-factor model of interest rates with analytical solutions for bonds and many … options on discount bonds (and futures) as well as other interest rate derivatives such as caps, floors, average rate options … of the Vasicek 1977 model) in terms of pricing the cross section of spot bonds. This occurs although the one-factor model …
Persistent link: https://www.econbiz.de/10010397477
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Changes in Trading Volume and Return Volatility Associated with S&P 500 Index Additions and Deletions
Lin, Cheng-I Eric - 2007
When a stock is added into the S&P 500 Index, it is automatically "cross-listed" in the index derivative markets (i.e., S&P 500 Index futures and Index options). I examined the effects of such cross-listing on the trading volume and return volatility of the underlying component stocks....
Persistent link: https://www.econbiz.de/10009475070
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Derivatives on volatility: some simple solutions based on observables
Heston, Steven L.; Nandi, Saikat - 2000
Proposals to introduce derivatives whose payouts are explicitly linked to the volatility of an underlying asset have been around for some time. In response to these proposals, a few papers have tried to develop valuation formulae for volatility derivatives—derivatives that essentially help...
Persistent link: https://www.econbiz.de/10010397484
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Options, sunspots, and the creation of uncertainty
Bowman, David; Faust, Jon - Federal Reserve Board (Board of Governors of the … - 1995
We present a model in which the addition of an option market leads to sunspot equilibria in an economy which has no sunspot equilibrium before the market is introduced. This phenomenon occurs because the payoff of an option contract is contingent upon market prices, and while prices are taken as...
Persistent link: https://www.econbiz.de/10005372635
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Extracting market expectations from option prices: case studies in Japanese option markets
Nakamura, Hisashi; Shiratsuka, Shigenori - Federal Reserve Bank of Chicago - 1999
This paper focuses on the recently developing financial derivatives markets, and examines the usefulness of option prices as an information variable for monetary policy implementation. A set of option prices provides us with information on the whole probability distribution of the future values...
Persistent link: https://www.econbiz.de/10005419977
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Derivatives on volatility: some simple solutions based on observables
Heston, Steven L.; Nandi, Saikat - Federal Reserve Bank of Atlanta - 2000
Proposals to introduce derivatives whose payouts are explicitly linked to the volatility of an underlying asset have been around for some time. In response to these proposals, a few papers have tried to develop valuation formulae for volatility derivatives—derivatives that essentially help...
Persistent link: https://www.econbiz.de/10005401935
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Stocks, bonds, options, futures, and portfolio insurance: a rose by any other name
Fortune, Peter - In: New England Economic Review (1995) Jul, pp. 25-46
exchange-traded options and a traditional portfolio of stocks and bonds. This is done by demonstrating the strategies of … uses stocks and bonds to create "synthetic" options. …
Persistent link: https://www.econbiz.de/10005428452
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The effect of interest rate options hedging on term-structure dynamics
Kambhu, John; Mosser, Patricia C. - In: Economic Policy Review (2001) Dec, pp. 51-70
Market participants and policymakers closely monitor movements in the yield curve for information about future economic fundamentals. In several recent episodes, however, disruptions to market liquidity have affected the short-term dynamics of the curve independently of fundamentals. This...
Persistent link: https://www.econbiz.de/10005713014
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Interest rate option pricing with volatility humps
Ritchken, Peter; Chuang, Iyuan - Federal Reserve Bank of Cleveland - 1997
A development of a simple model in which interest rate claims are priced in the Heath-Jarrow-Morton paradigm and so incorporate full information on the term structure. The volatility structure for forward rates is humped and includes as a special case the exponentially dampened volatility...
Persistent link: https://www.econbiz.de/10005526596
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Interest rate model theory with reference to the South African market
Van Wijck, Tjaart - 2006
An overview of modern and historical interest rate model theory is given with thespecific aim of derivative pricing. A variety of stochastic interest rate models arediscussed within a South African market context. The various models arecompared with respect to characteristics such as mean...
Persistent link: https://www.econbiz.de/10009442156