This study proposes an approximation of European option prices under arbitrary diffusion processes of the spot price. The key is to approximate the characteristic function of the log spot price process as the solution to ordinary differential equations. The option price is then obtained by the...

This paper attempts to predict the volatility of interest rates through dynamic term structure models. For this attempt, the models are improved, based on the three-factor Gaussian model, to have level-dependent volatilities supported by data. The empirical results show that the predictive power...