This paper studies the hedging effectiveness of interest rate swaps using different reference rates for eliminating interest rate risk from floating rate loans. Two different reference rates are studied. The first is a reference rate whose maturity, ∆, matches the payment interval of the...

Taking the term structure of Treasury securities and Eurodollar rates as exogenous, this paper provides an integrated approach to the pricing and hedging of LIBOR derivatives. Our approach allows the spread between Eurodollar and Treasury rates to reflect both the credit risk in holding...

This paper demonstrates the use of term-structure-related securities in the design of dynamic portfolio management strategies that hedge certain systematic jump risks in asset return. Option pricing formulas based on the absence of arbitrage opportunities in this context are also developed. the...

We derive alternative representations of the McKean equation for the value of the American put option. Our main result decomposes the value of an American put option into the corresponding European put price and the early exercise premium. We then represent the European put price in a new...