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Path dependent options on yields in the affine term structure model

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Author Info
Olivier Scaillet (Institut d'Administration et de Gestion and Département des Sciences Economiques, Université Catholique de Louvain, 3 place Montesquieu, B-1348 Louvain-la-Neuve, Belgique Manuscript)
Boris Leblanc (Banque Nationale de Paris, Université Paris VII and CREST Laboratoire de Finance Assurance, Bâtiment Malakoff 2 - Timbre J320, 15 Boulevard Gabriel Péri, F-92245 Malakoff Cedex, France)

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Abstract

We give analytical pricing formulae for path dependent options on yields in the framework of the affine term structure model. More precisely, European call options such as the arithmetic average call, the call on maximum and the lookback call are examined. For the two last options approximate formulae using the law of hitting times of an Ornstein-Uhlenbeck process are proposed. Numerical implementation is also briefly discussed and results are given in the case of the arithmetic average option.

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Publisher Info
Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 2 (1998)
Issue (Month): 4 ()
Pages: 349-367
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Handle: RePEc:spr:finsto:v:2:y:1998:i:4:p:349-367

Note: received: September 1996; final version received: October 1997
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Related research
Keywords: Term structure; path dependent options; affine model; hitting time; Laplace transform;

Other versions of this item:

Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Peter Bossaert & Eric Ghysels & Christian Gouriéroux, 1996. "Arbitrage Based Pricing When Volatility Is Stochastic," CIRANO Working Papers 96s-20, CIRANO. [Downloadable!]
    Other versions:
  2. Caio Ibsen R. Almeida & José Valentim M. Vicente, 2006. "Term Structure Movements Implicit in Option Prices," Working Papers Series 128, Central Bank of Brazil, Research Department. [Downloadable!]
  3. Alexander Novikov & R. E. Melchers & E. Shinjikashvili & N. Kordzakhia, 2003. "First Passage Time of Filtered Poisson Process with Exponential Shape Function," Research Paper Series 109, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  4. Caio Ibsen R. Almeida & José Valentim M. Vicente, 2007. "Identifying Volatility Risk Premium from Fixed Income Asian Options," Working Papers Series 136, Central Bank of Brazil, Research Department. [Downloadable!]
    Other versions:
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