In many markets, the term structure of interest rates implied by coupon Treasury bonds provides a key input for pricing and hedging interest rate-sensitive securities. Previous studies in the Japanese market, however, suggest that the prices of the Japanese Government Bonds (JGB's) were...

The no-arbitrage approach to option pricing implies that risk-neutral prices follow a martingale. The validity of this property has been tested and rejected by Longstaff (1995). Since he tested the general framework, his results have far reaching and disturbing implications for contingent claims...

In this paper, we investigate the pricing of Japanese yen interest rate swaps during the period 1990 to 1996 with particular reference to credit risk. We estimate the default-free term structure of interest rates using the prices of ten-year Japanese Government Bonds (JGB's), using the basis...

In this paper, we propose an alternative approach for pricing and hedging non-standard American options. In principle, the proposed approach applies to any kind of American-style contract for which the payoff function has a Markovian representation in the state space. Specifically, we obtain an...