A recent article of Flesaker and Hughston introduces a one factor interest rate model called the rational lognormal model. This model has a lot to recommend it including guaranteed finite positive interest rates and analytic tractability. Consequently, it has received a lot of attention among...

This paper proposes the sample path generation method for the stochastic volatility version of the CGMY process. We present the Monte-Carlo method for European and American option pricing with the sample path generation and calibrate model parameters to the American style S&P 100 index options...

The Market Models of the term structure of interest rates, in which forward LIBOR or forward swap rates are modelled to be lognormal under the forward probability measure of the corresponding maturity, are extended to a multicurrency setting. If lognormal dynamics are assumed for forward LIBOR...

We introduce a general class of interest rate models in which the value of pure discount bonds can be expressed as a functional of some (low-dimensional) Markov process. At the abstract level this class includes all current models of practical importance. By specifying these models in...

We analyze the joint convergence of sequences of discounted stock prices and Radon-Nicodym derivatives of the minimal martingale measure when interest rates are stochastic. Therefrom we deduce the convergence of option values in either complete or incomplete markets. We illustrate the general...

In this paper, a class of forward rate dependent Markovian transformations of the Heath-Jarrow-Morton [16] term structure model are obtained by considering volatility processes that are solutions of linear ordinary differential equations. These transformations generalise the Markovian systems...

We present a new family of yield curve models, termed "Conditional Gaussian". It provides both simplicity and extreme flexibility in constructing "market models". Almost any conditional co-variance structure - including features designed to capture volatility "skews" and/or dependence on past...

Este documento tiene como propósito evaluar la aplicabilidad del modelo de tasa de interés de Vasicek (1977) para la valorar opciones call y put sobre un título de renta fija colombiano. Para el desarrollo de esta aplicación, se efectúan estimaciones econométricas con procesos...

This empirical research explores the interaction between the overnight currency swap rates (Turkish lira rates) and BIST overnight repo rates. In this context, the derived no arbitrage condition reveals that the differential between the two rates is determined by Libor, financial institutions’...

We consider the valuation of European quanto call options in an incomplete market where the domestic and foreign forward interest rates are allowed to exhibit regime shifts under the Heath–Jarrow–Morton (HJM) framework, and the foreign price dynamics is exogenously driven by a regime...