This paper proposes a new Monte Carlo technique for pricing options on forward bonds, by diffusing the bond-related Yield To Maturity (YTM). The framework stands for both sovereign and corporate bonds. We price both in stochastic and local default intensity (Hazard Rate Function). We actually...

A well-documented empirical result is that market expectations extracted from futures contracts on the federal funds rate are among the best predictors for the future course of monetary policy. We show how this information can be exploited to produce accurate forecasts of bond excess returns and...