The Direct Approach to Debt Option Pricing
AbstractWe review the continuous--time literature on the so-- called direct approach to bond option pricing. Going back to Ball and Torous (1983), this approach models bond price processes directly (i.e. without reference to interest rates or state variable processes) and applies methods that Black and Scholes (1973) and Merton (1973) had originally developed for stock options. We describe the principal modelling problems of the direct approach and compare in detail the solutions proposed in the literature. (Completely revised version march 1995)
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 212.
Date of creation: Mar 1995
Date of revision:
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Arbitrage; Debt Options; Option Pricing;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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