We address three questions relating to the interest rate options market: What is the shape of the smile? What are the economic determinants of the shape of the smile? Do these determinants have predictive power for the future shape of the smile and vice versa? We investigate these issues using...

Bank credit has evolved from the traditional relationship banking model to an originate-to-distribute model. We show that the borrowers whose loans are sold in the secondary market underperform their peers by about 9% per year (risk-adjusted) over the three-year period following the initial sale...

This paper examines the pricing and hedging performance of interest rate option pricing models in the U.S. dollar interest rate cap and floor markets. We evaluate alternative one-factor and two-factor term structure models on daily data from March-December 1998, consisting of actual cap and...

This paper examines whether higher order multifactor models, with state variables linked solely to the full set of underlying LIBOR-swap rates, are by themselves capable of explaining and hedging interest rate derivatives, or whether models explicitly exhibiting features such as unspanned...

An Examination of the Static and Dynamic Performance of Interest Rate Option Pricing Models In the Dollar Cap-Floor Markets Anurag Gupta Marti G. Subrahmanyam Abstract This paper examines the static and dynamic accuracy of interest rate option pricing models in the U.S. dollar interest rate cap...

This paper examines whether higher order multifactor models, with state variables linked "solely" to underlying LIBOR-swap rates, are by themselves capable of explaining and hedging interest rate derivatives, or whether models explicitly exhibiting features such as unspanned stochastic...