Path dependent options on yields in the affine term structure model
AbstractWe 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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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 2 (1998)
Issue (Month): 4 ()
Note: received: September 1996; final version received: October 1997
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Web page: http://www.springerlink.com/content/101164/
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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- Bossaerts, P. & Ghysels, E. & Gourieroux, C., 1996.
"Arbitrage-Based Pricing when Volatility is Stochastic,"
Cahiers de recherche
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- Ditlevsen, Susanne, 2007. "A result on the first-passage time of an Ornstein-Uhlenbeck process," Statistics & Probability Letters, Elsevier, vol. 77(18), pages 1744-1749, December.
- 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.
- Jang, Bong-Gyu & Yoon, Ji Hee, 2010. "Analytic valuation formulas for range notes and an affine term structure model with jump risks," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2132-2145, September.
- Xing, Xiaoyu & Xing, Yongsheng & Yang, Xuewei, 2012. "A note on transition density for the reflected Ornstein–Uhlenbeck process," Statistics & Probability Letters, Elsevier, vol. 82(3), pages 586-591.
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