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Implied derivative security prices based two-factor interest model: a UK application

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Author Info
Ghulam Sorwar
Abstract

In this paper the extended Box Method recently introduced to finance is used to value bond and option prices based on the two-factor CKLS interest rate model. The two-factor CKLS model is estimated using the one-year Eurodollar rate for the UK as the long rate and either the one-week, or one-month Euro dollar rate for the UK as the short rate. Overall, it is found that both and option prices are sensitive to the model used.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 10 (June)
Pages: 739-744
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Handle: RePEc:taf:apfiec:v:15:y:2005:i:10:p:739-744

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  1. Dahlquist, Magnus, 1996. "On alternative interest rate processes," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1093-1119, July. [Downloadable!] (restricted)
  2. Boyle, Phelim P., 1977. "Options: A Monte Carlo approach," Journal of Financial Economics, Elsevier, vol. 4(3), pages 323-338, May. [Downloadable!] (restricted)
  3. Nowman, K B, 1997. " Gaussian Estimation of Single-Factor Continuous Time Models of the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 52(4), pages 1695-1706, September. [Downloadable!] (restricted)
  4. Eraker, Bjorn, 2001. "MCMC Analysis of Diffusion Models with Application to Finance," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 177-91, April.
  5. Brennan, Michael J. & Schwartz, Eduardo S., 1979. "A continuous time approach to the pricing of bonds," Journal of Banking & Finance, Elsevier, vol. 3(2), pages 133-155, July. [Downloadable!] (restricted)
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This page was last updated on 2008-8-31.

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