We analyse the procedure for determining volatility presented by Lagnado and Osher, and explain in some detail where the scheme comes from. We present an alternative scheme which avoids some of the technical complications arising in Lagnado and Osher's approach. An algorithm for solving the...

We consider a single factor Heath-Jarrow-Morton model with a forward rate volatility function depending upon a function of time to maturity, the instantaneous spot rate of interest and a forward rate to a fixed maturity. With this specification the stochastic dynamics determining the prices of...

Persistent bear market conditions have led to a shift of focus in the tracking error literature. Until recently the portfolio allocation literature focused on tracking error minimization as a consequence of passive benckmark management under portfolio weights, transaction costs and short selling...

The pricing of point barrier or discretely monitored barrier options is a difficult problem. In general, there is no known closed form solution for pricing such options. In this paper we develop a path integral approach to the evaluation of barrier options. This leads to a backward recursion...

The solution to the problem of hedging contingent claims by local risk-minimisation has been considered in detail in Follmer and Sondermann (1986), Follmer and Schweizer (1991) and Schweizer (1991). However, given a stochastic process Xt and tau1 tau2, the strategy that is locally...

We consider the pricing of American bond options in a Heath-Jarrow-Morton framework in which the forward rate volatility is a function of time to maturity and the instantaneous spot rate of interest. We have shown in Chiarella and El-Hassan (1996) that the resulting pricing partial differential...

This paper considers the evaluation of derivative security prices within the Heath-Jarrow-Morton framework of stochastic interest rates, such as bond options. Within this framework, the stochastic dynamics driving prices are in general non-Markovian. Hence, in principle the partial differential...

The objectives of this paper are twofold: the first is the reconciliation of the differences between the Vasicek and the Heath-Jarrow-Morton approaches to the modelling of term structure of interest rates. We demonstrate that under certain (not empirically unreasonable) assumptions prices of...

We present two simple models for the fair value of a self-funding instalment warrant. In the rst model, we assume that the underlying share pays a continuous dividend yield and in the second we assume that it pays a series of discrete dividend yields. We show that both models admit similarity...