On the term structure of Interbank interest rates: jump-diffusion processes and option pricing
AbstractIn this paper we study the dynamic behavior of the term structure of Interbank interest rates and the pricing of options on interest rate sensitive securities. We posit a generalized single factor model with jumps to take into account external influences in the market. Daily data is used to test for jump effects. Qualitative examination of the linkage between Monetary Authorities interventions and jumps are studied. Pricing results suggests a systematic underpricing in bonds and call options if the jump component is not inc1uded. However, the pricing of put options on bonds presents indeterminacies.
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- Manuel Moreno & Juan I. Peña, 1996. "On the term structure of Interbank interest rates: Jump-diffusion processes and option pricing," Economics Working Papers 191, Department of Economics and Business, Universitat Pompeu Fabra.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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