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Option and Futures Evaluation With Deterministic Volatilities

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  • Farshid Jamshidian

Abstract

Several risk-neutral expectation formulae are derived in a general multifactor setting. Specializing to deterministic covariances of returns, they lead to formulae for forward and future prices as well as formulae for options on forward and futures contracts. the results are applicable to currencies, bonds, commodities with stochastic convenience yield, and stock indices. For currencies, a noarbitrage relation between domestic and foreign economies is formulated and applied to evaluate quanto futures and options. Copyright 1993 Blackwell Publishers.

Suggested Citation

  • Farshid Jamshidian, 1993. "Option and Futures Evaluation With Deterministic Volatilities," Mathematical Finance, Wiley Blackwell, vol. 3(2), pages 149-159.
  • Handle: RePEc:bla:mathfi:v:3:y:1993:i:2:p:149-159
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9965.1993.tb00084.x
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    Cited by:

    1. John Crosby, 2008. "A multi-factor jump-diffusion model for commodities," Quantitative Finance, Taylor & Francis Journals, vol. 8(2), pages 181-200.
    2. Raphaël Douady, 2013. "Yield Curve Smoothing and Residual Variance of Fixed Income Positions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00666751, HAL.
    3. Raphaël Douady, 2014. "Yield Curve Smoothing and Residual Variance of Fixed Income Positions," Post-Print hal-01151276, HAL.
    4. Samson Assefa, 2007. "Pricing Swaptions and Credit Default Swaptions in the Quadratic Gaussian Factor Model," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 31, january-d.
    5. Frey, Rüdiger & Daniel Sommer, 1995. "A Systematic Approach to Pricing and Hedging of International Derivatives with Interest-Rate Risk," Discussion Paper Serie B 306, University of Bonn, Germany, revised Jun 1996.
    6. Goldys, B. & M. Musiela & D. Sondermann, 1996. "Lognormality of Rates and Term Structure Models," Discussion Paper Serie B 394, University of Bonn, Germany.
    7. repec:dau:papers:123456789/5374 is not listed on IDEAS
    8. Farshid Jamshidian, 1997. "LIBOR and swap market models and measures (*)," Finance and Stochastics, Springer, vol. 1(4), pages 293-330.
    9. San-Lin Chung, 2000. "American option valuation under stochastic interest rates," Review of Derivatives Research, Springer, vol. 3(3), pages 283-307, October.
    10. Martzoukos, Spiros H., 2001. "The option on n assets with exchange rate and exercise price risk," Journal of Multinational Financial Management, Elsevier, vol. 11(1), pages 1-15, February.
    11. Samson Assefa, 2007. "Calibration and Pricing in a Multi-Factor Quadratic Gaussian Model," Research Paper Series 197, Quantitative Finance Research Centre, University of Technology, Sydney.
    12. Raphaël Douady, 2014. "Yield Curve Smoothing and Residual Variance of Fixed Income Positions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01151276, HAL.
    13. Jamshidian, Farshid, 2008. "Numeraire Invariance and application to Option Pricing and Hedging," MPRA Paper 7167, University Library of Munich, Germany.
    14. Bick, Avi, 2012. "The relationship between reciprocal currency futures prices," Finance Research Letters, Elsevier, vol. 9(4), pages 194-201.
    15. Constantin Mellios, 2001. "Valuation of Interest Rate Options in a Two-Factor Model of the Term Structure of Interest Rate," Working Papers 2001-1, Laboratoire Orléanais de Gestion - université d'Orléans.
    16. Anh Ngoc Lai & Constantin Mellios, 2016. "Valuation of commodity derivatives with an unobservable convenience yield," Post-Print halshs-01183166, HAL.
    17. Jamshidian, Farshid, 2007. "Exchange Options," MPRA Paper 4471, University Library of Munich, Germany, revised 14 Aug 2007.

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