We build a no-arbitrage model of the term structure of interest rates using two stochastic factors, the short-term interest rate and the premium of the futures rate over the short-term interest rate. The model provides and extension of the lognormal interest rate model of Black and Karasinski...

We build a no-arbitrage model of the term structure, using two stochastic factors on each date, the short-term interest rate and the forward premium. The model is essentially an extension to two factors of the lognormal interest rate model of Black-Karazinski. It allows for mean reversion in the...

We propose a multifactor model in which the spot rate, LIBOR, follows a lognormal process, with a stochastic conditional mean, under the risk-neutral measure. In addition to the spot rate factor, the second factor is related to the premium of the first futures rate over the spot LIBOR....

We build a three-factor term-structure of interest rates model and use it to price corporate bonds. The first two factors allow the risk-free term structure to shift and tilt. The third factor generates a stochastic credit-risk premium. To implement the model, we apply the Peterson and Stapleton...

In this paper we investigate models of the term structure where the factors are interest rates. As an example, we derive a no-arbitrage model of the term structure in which any two futures (as opposed to forward) rates act as factors. The term structure shifts and tilts as the factor rates vary....

An important determinant of option prices is the elasticity of the pricing kernel used to price all claims in the economy. In this paper, we first show that for a given forward price of the underlying asset, option prices are higher when the elasticity of the pricing kernel is declining than...

This paper assumes that the underlying asset prices are lognormally distributed, and derives necessary and sufficient conditions for the valuation of options using a Blackâ€Scholes type methodology. It is shown that the price of a futuresâ€style, markedâ€toâ€market option is given by...

In this paper, we derive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Also, some investors supply and others demand forward contracts. Since investors are assumed to have similar risk-averse preferences, the demand for these...