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Random step functions model for interest rates
Virag, Eleanor; Klebaner, Fima C.; Borovkov, Konstantin - In: Finance and Stochastics 7 (2003) 1, pp. 123-143
We propose a new model for pricing of bonds and their options based on the short rate when the latter exhibits a step function like behaviour. The model produces realistic looking spot rate curves, and allows one to derive explicit formulae for the yield curve and put and cap options. This model...
Persistent link: https://www.econbiz.de/10005759620
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Bond pricing in a hidden Markov model of the short rate
LandÊn, Camilla - In: Finance and Stochastics 4 (2000) 4, pp. 371-389
We consider a diffusion type model for the short rate, where the drift and diffusion parameters are modulated by an underlying Markov process. The underlying Markov process is assumed to have a stochastic differential driven by Wiener processes and a marked point process. The model for the short...
Persistent link: https://www.econbiz.de/10005759623
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Implied interest rate pricing models
Kennedy, J.E.; Hunt, P.J. - In: Finance and Stochastics 2 (1998) 3, pp. 275-293
We show how market prices for standard interest rate products can be used, under the assumption of a one-factor model, to imply the joint distribution of zero coupon bonds of differing maturities at a fixed date $T$ in the future. We relate these results to the solution of an optimisation...
Persistent link: https://www.econbiz.de/10005759640
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A note on pricing interest rate derivatives when forward LIBOR rates are lognormal
Goldys, Beniamin - In: Finance and Stochastics 1 (1997) 4, pp. 345-352
We derive the closed form pricing formulae for contracts written on zero coupon bonds for the lognormal forward LIBOR …
Persistent link: https://www.econbiz.de/10005759650
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LIBOR and swap market models and measures (*)
Jamshidian, Farshid - In: Finance and Stochastics 1 (1997) 4, pp. 293-330
A self-contained theory is presented for pricing and hedging LIBOR and swap derivatives by arbitrage. Appropriate …-financing trading strategy. LIBOR and swap derivatives satisfy this condition, implying they can be priced and hedged with a finite … forward libor and swap rates, and shown to have a unique positive solution when the percentage volatility function is bounded …
Persistent link: https://www.econbiz.de/10005759651
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On the construction of finite dimensional realizations for nonlinear forward rate models
Landén, Camilla; Björk, Tomas - In: Finance and Stochastics 6 (2002) 3, pp. 303-331
We consider interest rate models of Heath-Jarrow-Morton type where the forward rates are driven by a multidimensional Wiener process, and where the volatility structure is allowed to be a smooth functional of the present forward rate curve. In a recent paper [3], Björk and Svensson give...
Persistent link: https://www.econbiz.de/10005166860
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A simple regime switching term structure model
Hansen, Asbjørn T.; Poulsen, Rolf - In: Finance and Stochastics 4 (2000) 4, pp. 409-429
We extend the short rate model of Vasicek (1977) to include jumps in the local mean. Conditions ensuring existence of a unique equivalent martingale measure are given, implying that the model is arbitrage-free and complete. We develop efficient numerical methods for computation of zero coupon...
Persistent link: https://www.econbiz.de/10005166867
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Minimal realizations of interest rate models
BjÃrk, Tomas; Gombani, Andrea - In: Finance and Stochastics 3 (1999) 4, pp. 413-432
We consider interest rate models where the forward rates are allowed to be driven by a multidimensional Wiener process as well as by a marked point process. Assuming a deterministic volatility structure, and using ideas from systems and control theory, we investigate when the input-output map...
Persistent link: https://www.econbiz.de/10005184377
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Path dependent options on yields in the affine term structure model
Scaillet, Olivier; Leblanc, Boris - In: Finance and Stochastics 2 (1998) 4, pp. 349-367
We give analytical pricing formulae for path dependent options on yields in the framework of the affine term structure model. More precisely, European call options such as the arithmetic average call, the call on maximum and the lookback call are examined. For the two last options approximate...
Persistent link: https://www.econbiz.de/10005613410
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Numerical solution of jump-diffusion LIBOR market models
Merener, Nicolas; Glasserman, Paul - In: Finance and Stochastics 7 (2003) 1, pp. 1-27
This paper develops, analyzes, and tests computational procedures for the numerical solution of LIBOR market models … intensities that depend on the LIBOR rates themselves. While this formulation offers some attractive modeling features, it … without discretization error. Jumps in LIBOR rates are then thinned from the Poisson random measure using state …
Persistent link: https://www.econbiz.de/10005613433