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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

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

Asymmetric information about volatility and option markets

Nandi, Saikat - 1995

This paper develops a model of asymmetric information in which an investor has information regarding the future volatility of the price process of an asset but not the future asset price. It is shown that there exists an equilibrium in which the investor trades an option on the asset and...

Persistent link: https://www.econbiz.de/10010397427

A closed-form GARCH option pricing model

Heston, Steven L.; Nandi, Saikat - 1997

This paper develops a closed-form option pricing formula for a spot asset whose variance follows a GARCH process. The model allows for correlation between returns of the spot asset and variance and also admits multiple lags in the dynamics of the GARCH process. The single-factor (one-lag)...

Persistent link: https://www.econbiz.de/10010397476

Efficiency in index options markets and trading in stock baskets

Ackert, Lucy F.; Tian, Yisong S. - 1999

Researchers have reported mispricing in index options markets. This study further examines the efficiency of the S&P 500 index options market by testing theoretical pricing relationships implied by no-arbitrage conditions. The effect of a traded stock basket, Standard and Poor's Depository...

Persistent link: https://www.econbiz.de/10010397522

Pricing and hedging index options under stochastic volatility: an empirical examination

Nandi, Saikat - 1996

An empirical examination of the pricing and hedging performance of a stochastic volatility (SV) model with closed form solution (Heston 1993) is provided for options on the S&P 500 index in which the unobservable time varying volatility is jointly estimated with the time invariant parameters of...

Persistent link: https://www.econbiz.de/10010397571

Preference-free option pricing with path-dependent volatility: A closed-form approach

Heston, Steven L.; Nandi, Saikat - 1998

This paper shows how one can obtain a continuous-time preference-free option pricing model with a path-dependent volatility as the limit of a discrete-time GARCH model. In particular, the continuous-time model is the limit of a discrete-time GARCH model of Heston and Nandi (1997) that allows...

Persistent link: https://www.econbiz.de/10010397572

Pricing S&P 500 index options using a Hilbert space basis

Abken, Peter A.; Madan, Dilip B.; Ramamurtie, Sailesh - 1996

This paper tests the approach of Madan and Milne (1994) and its extension in Abken, Madan, and Ramamurtie (1996) for pricing contingent claims as elements of a separable Hilbert space. We specialize the Hilbert space basis to the family of Hermite polynomials and test the model on S&P 500 index...

Persistent link: https://www.econbiz.de/10010397584

The impact of a dealer's failure on OTC derivatives market liquidity during volatile periods

Wall, Larry D.; Tallman, Ellis W.; Abken, Peter A. - 1996

This paper develops a model in which information losses may be an important part of the cost of an OTC derivatives dealer's failure. A dealer failure forces solvent counterparties of a failed dealer to seek replacement hedges with other dealers. However, by forcing good firms into the...

Persistent link: https://www.econbiz.de/10010397429

Corporate hedging in the insurance industry: the use of financial derivatives by U.S. insurers

Cummins, J. David; Phillips, Richard D.; Smith, Stephen D. - 1996

In this paper we investigate the extent to which insurance companies utilize financial derivatives contracts in the management of risks. The data set we employ allows us to observe the universe of individual insurer transactions for a class of contracts, namely, those normally through of as...

Persistent link: https://www.econbiz.de/10010397503