This paper proposes a simple two-factor model of nominal term structure of interest rates, in which the log-price kernel has an autoregressive drift process and a nonlinear GARCH volatility process. Given these two state-variable processes, closed-form expressions are derived for the zero-coupon...

One of the most widely used option-valuation models among practitioners is the ad hoc Black-Scholes (AHBS) model. The main contribution of this study is methodological. We carefully consider three dividend strategies (No dividend, Implied-forward dividend, and Actual dividend) for the AHBS model...

This paper presents an analytic approximation formula for pricing zero-coupon bonds, when the dynamics of the short-term interest rate are driven by a one-factor mean-reverting process in which changes in the volatility of the interest rate are a function of the level of the interest rate

The ad hoc Black-Scholes (AHBS) model is one of the most widely used option valuation models among practitioners models. The main contribution of this study is methodological. We have two main results: (1) we make the empirical observation that typically the call and put sneers are discontinuous...