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Explicit bond option and swaption formula in Heath-Jarrow-Morton one factor model

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Author Info
Marc Henrard (Bank for International Settlements)

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Abstract

We present an explicit formula for European options on coupon bearing bonds and swaptions in the Heath-Jarrow-Morton (HJM) one factor model with non-stochastic volatility. The formula extends the Jamshidian formula for zero-coupon bonds. We provide also an explicit way to compute the hedging ratio (Delta) to hedge the option with its underlying.

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Paper provided by EconWPA in its series Finance with number 0310009.

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Date of creation: 12 Oct 2003
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Handle: RePEc:wpa:wuwpfi:0310009

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Web page: http://129.3.20.41

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Related research
Keywords: Bond option; swaption; explicit formula; HJM model; one factor model; hedging;

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Find related papers by JEL classification:
G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January. [Downloadable!] (restricted)
  2. Jamshidian, Farshid, 1989. " An Exact Bond Option Formula," Journal of Finance, American Finance Association, vol. 44(1), pages 205-09, March. [Downloadable!] (restricted)
  3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marc Henrard, 2005. "Bermudan swaptions in Hull-White one-factor model: analytical and numerical approaches," Finance 0505023, EconWPA. [Downloadable!]
  2. Marc Henrard, 2006. "A Semi-Explicit Approach to Canary Swaptions in HJM One-Factor Model," Applied Mathematical Finance, Taylor and Francis Journals, vol. 13(1), pages 1-18, March. [Downloadable!] (restricted)
  3. Henrard, Marc, 2006. "Bonds futures and their options: more than the cheapest-to-deliver; quality option and marginning," MPRA Paper 2001, University Library of Munich, Germany. [Downloadable!]
  4. Marc Henrard, 2004. "Overnight Indexed Swaps and Floored Compounded Instrument in HJM One-Factor Model," Finance 0402008, EconWPA. [Downloadable!]
  5. Marc Henrard, 2005. "Inflation bond option pricing in Jarrow-Yildirim model," Finance 0510027, EconWPA. [Downloadable!]
  6. Henrard, Marc, 2006. "Bonds futures: Delta? No gamma!," MPRA Paper 2249, University Library of Munich, Germany, revised 01 May 2006. [Downloadable!]
  7. Henrard, Marc, 2006. "TIPS Options in the Jarrow-Yildirim model," MPRA Paper 1423, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-12-13.

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