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Vol-Bond: an analytical solution

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  • Roberto Baviera

Abstract

We find an analytical solution of the Vol-Bond according to the multi-factor Gaussian Heath-Jarrow-Morton model. We show how to calibrate the model with market data. This solution allows complete (and fast) control of this class of derivatives and of their sensitivities.

Suggested Citation

  • Roberto Baviera, 2003. "Vol-Bond: an analytical solution," Quantitative Finance, Taylor & Francis Journals, vol. 3(4), pages 285-287.
    • Handle: RePEc:taf:quantf:v:3:y:2003:i:4:p:285-287
    DOI: 10.1088/1469-7688/3/4/304
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    References listed on IDEAS

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    1. David Heath & Robert Jarrow & Andrew Morton, 2008. "Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305, World Scientific Publishing Co. Pte. Ltd..
    2. Jamshidian, Farshid, 1989. " An Exact Bond Option Formula," Journal of Finance, American Finance Association, vol. 44(1), pages 205-209, March.
    3. Alan Brace & Dariusz G¸atarek & Marek Musiela, 1997. "The Market Model of Interest Rate Dynamics," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 127-155, April.
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    Cited by:

    1. Roberto Baviera, 2007. "A simple solution for sticky cap and sticky floor," Quantitative Finance, Taylor & Francis Journals, vol. 7(3), pages 285-287.

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