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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0310009.
Date of creation: 12 Oct 2003
Date of revision:
Note: Type of Document - LaTeX; prepared on Linux; to print on HP;
Contact details of provider:
Web page: http://184.108.40.206
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.:
- 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.
- Peter Ritchken & L. Sankarasubramanian, 1995. "Volatility Structures Of Forward Rates And The Dynamics Of The Term Structure," Mathematical Finance, Wiley Blackwell, vol. 5(1), pages 55-72.
- Jamshidian, Farshid, 1989. " An Exact Bond Option Formula," Journal of Finance, American Finance Association, vol. 44(1), pages 205-09, March.
- 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.
- Marc Henrard, 2004. "Overnight Indexed Swaps and Floored Compounded Instrument in HJM One-Factor Model," Finance 0402008, EconWPA.
- 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.
- Henrard, Marc, 2006. "TIPS Options in the Jarrow-Yildirim model," MPRA Paper 1423, University Library of Munich, Germany.
- Henrard, Marc, 2007. "CMS swaps in separable one-factor Gaussian LLM and HJM model," MPRA Paper 3228, University Library of Munich, Germany.
- Marc Henrard, 2005. "Bermudan swaptions in Hull-White one-factor model: analytical and numerical approaches," Finance 0505023, 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.
- 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.
- Henrard, Marc, 2006. "Bonds futures: Delta? No gamma!," MPRA Paper 2249, University Library of Munich, Germany, revised 01 May 2006.
- Marc Henrard, 2005. "Inflation bond option pricing in Jarrow-Yildirim model," Finance 0510027, EconWPA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.