IDEAS home Printed from
   My bibliography  Save this article

Exact Formulas For Pricing Bonds And Options When Interest Rate Diffusions Contain Jumps


  • John D. Finnerty


I develop Heath-Jarrow-Morton extensions of the Vasicek and Jamshidian pure-diffusion models, extend these models to incorporate Poisson-Gaussian interest rate jumps, and obtain closed-form models for valuing default-free, zero-coupon bonds and European call and put options on default-free, zero-coupon bonds in a market where interest rates can experience discontinuous information shocks. The jump-diffusion pricing models value the instrument as the probability-weighted average of the pure-diffusion model prices, each conditional on a specific number of jumps occurring during the life of the instrument. I extend the models to coupon-bearing instruments by applying Jamshidian's serial-decomposition technique. 2005 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • John D. Finnerty, 2005. "Exact Formulas For Pricing Bonds And Options When Interest Rate Diffusions Contain Jumps," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(3), pages 319-341.
  • Handle: RePEc:bla:jfnres:v:28:y:2005:i:3:p:319-341

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfnres:v:28:y:2005:i:3:p:319-341. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.