In a highly publicized example, a marketing and refining subsidiary of AG Metallgesellschaft controlled short term forward positions reportedly equivalent to 160 million barrels of oil, 60 times the daily output of Kuwait. Presumably, the short term positions were taken to hedge oil contracts to...

A number of papers have investigated the pricing of options on traded assets when the interest rate or the volatility of the underlying is assumed to be stochastic. This article extends the work by using the binomial technology to price options where it is assumed that, in addition to the...

This paper uses a bivariate binomial options pricing technique to value the prepayment and default options in a fixed-rate mortgage. The American style options are dependent on two stochastic variables: (1) house price, (2) one year spot rate. The paper uses the standard lognormal process for...

We investigate the effects of stochastic interest rates and jumps in the spot exchange rate on the pricing of currency futures, forwards and futures options. The proposed model extends Bates' model by allowing both the domestic and foreign interest rates to move around randomly, in a generalized...

Black (1976) model assumes a lognormal distribution for futures prices, and has been shown to misprice deep in-the-money and deep out-of-the-money futures options. In this paper, the jump-diffusion stochastic interest rates model developed by Doffou and Hilliard (1999a) is fitted to currency...

We investigate the effects of stochastic interest rates and jumps in the spot exchange rate on the pricing of currency futures, forwards and futures options. The proposed model extends Bates' model by allowing both the domestic and foreign interest rates to move around randomly, in a generalized...

This article develops a method for valuing contingent payoffs for a non-constant volatility process via a simple recombining binomial tree. The direct application of the technology provides a way to price, for example, American calls or puts governed by a stock price process with stochastic...

Univariate procedures for valuing contingent payoffs for a non-constant volatility process via a recombining tree were developed by Nelson and Ramaswamy (RFS, 1990). Their results have been extended to the bivariate case for a subset of diffusions by, among others, Kishimoto (JF, 1989), Boyle,...