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Single-Period Binomial Heath–Jarrow–Morton Model

In: An Introduction to Derivative Securities, Financial Markets, and Risk Management

Author

Listed:
  • ROBERT A. JARROW
  • ARKADEV CHATTERJEA

Abstract

The following sections are included:IntroductionThe Basic Interest Rate DerivativesUses of Caps, Floors, and CollarsA Brief History of Interest Rate Derivatives ModelsThe AssumptionsThe Single-Period ModelArbitrage-Free EvolutionsZero-Coupon Bond Prices and MartingalesUnderstanding the Equal Pseudo-probability ConditionActual versus Pseudo-probabilitiesCaplet PricingThe Hedge Ratio (the Holy Grail)Risk-Neutral ValuationValuing a FloorletValuing Various Interest Rate DerivativesMultiple FactorsSummaryAppendixThe Equal Pseudo-probability ConditionProof of SufficiencyProof of Caplet and Floorlet ParityCasesQuestions and Problems

Suggested Citation

  • Robert A. Jarrow & Arkadev Chatterjea, 2019. "Single-Period Binomial Heath–Jarrow–Morton Model," World Scientific Book Chapters,in: An Introduction to Derivative Securities, Financial Markets, and Risk Management, chapter 23, pages 558-591 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9781944659561_0023
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    Keywords

    Derivatives; Financial Markets; Risk Management; Arbitrage; Financial Engineering; Forwards; Futures; Call Options; Put Options; European Options; American Options; Swaps; Currency Swaps; Interest Rate Swaps; Commodity Swaps; Equity Swaps; Credit Default Swaps; Commodity Derivatives; Equity Derivatives; Index Derivatives; Interest Rate Derivatives; Commodities; Margins and Daily Settlements; Binomial Model; Black-Scholes Model; Black-Scholes-Merton Model; Delta Hedging; Gamma Hedging; Heath-Jarrow-Morton Model; Libor Model; Forward Rate Agreements; Interest Rate Futures; Interest Rate Options; Market Manipulation; Regulation; Derivatives Exchanges;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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