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Term structure movements implicit in Asian option prices


  • Caio Almeida
  • José Vicente


In this paper we implement dynamic term structure models that adopt bonds and Asian options in the estimation process. The goal is to analyse the pricing and hedging implications of term structure movements when options are (or are not) included in the estimation process. We investigate how options affect the shape, risk premium and hedging structure of the dynamic factors. We find that the inclusion of options affects the loadings of the slope and curvature factors, and considerably changes the risk premium and hedging structure of all dynamic factors.

Suggested Citation

  • Caio Almeida & José Vicente, 2012. "Term structure movements implicit in Asian option prices," Quantitative Finance, Taylor & Francis Journals, vol. 12(1), pages 119-134, February.
  • Handle: RePEc:taf:quantf:v:12:y:2012:i:1:p:119-134
    DOI: 10.1080/14697681003720253

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    Cited by:

    1. Allan Jonathan da Silva & Jack Baczynskiy & José Valentim M. Vicente, 2015. "A Discrete Monitoring Method for Pricing Asian Interest Rate Options," Working Papers Series 409, Central Bank of Brazil, Research Department.
    2. Daniela Kubudi & José Vicente, 2016. "A Joint Model of Nominal and Real Yield Curves," Working Papers Series 452, Central Bank of Brazil, Research Department.

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