Explicit bond option and swaption formula in Heath-Jarrow-Morton one factor model
AbstractWe 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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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0310009.
Date of creation: 12 Oct 2003
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Bond option; swaption; explicit formula; HJM model; one factor model; hedging;
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 - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-10-20 (All new papers)
- NEP-CFN-2003-10-20 (Corporate Finance)
- NEP-RMG-2003-10-20 (Risk Management)
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.:
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- Henrard, Marc, 2006. "Bonds futures: Delta? No gamma!," MPRA Paper 2249, University Library of Munich, Germany, revised 01 May 2006.
- 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.
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- Marc Henrard, 2005. "Inflation bond option pricing in Jarrow-Yildirim model," Finance 0510027, EconWPA.
- Ingo Beyna & Carl Chiarella & Boda Kang, 2012. "Pricing Interest Rate Derivatives in a Multifactor HJM Model with Time," Research Paper Series 317, Quantitative Finance Research Centre, University of Technology, Sydney.
- Marc Henrard, 2006. "A Semi-Explicit Approach to Canary Swaptions in HJM One-Factor Model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(1), pages 1-18.
- Marc Henrard, 2005. "Bermudan swaptions in Hull-White one-factor model: analytical and numerical approaches," Finance 0505023, EconWPA.
- Henrard, Marc, 2006. "TIPS Options in the Jarrow-Yildirim model," MPRA Paper 1423, University Library of Munich, Germany.
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