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Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation

In: Financial Derivatives Pricing Selected Works of Robert Jarrow

Listed author(s):
  • DAVID HEATH
  • ROBERT JARROW
  • ANDREW MORTON

AbstractThis paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates. The methodology, based on the equivalent martingale measure technique, takes as given an initial forward rate curve and a family of potential stochastic processes for its subsequent movements. A no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk. Examples are provided to illustrate the key results.

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File URL: http://www.worldscientific.com/doi/pdf/10.1142/9789812819222_0013
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File URL: http://www.worldscientific.com/doi/abs/10.1142/9789812819222_0013
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This chapter was published in:
  • Robert A Jarrow, 2008. "Financial Derivatives Pricing:Selected Works of Robert Jarrow," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6911, March.
  • This item is provided by World Scientific Publishing Co. Pte. Ltd. in its series World Scientific Book Chapters with number 9789812819222_0013.
    Handle: RePEc:wsi:wschap:9789812819222_0013
    Contact details of provider: Web page: http://www.worldscientific.com/page/worldscibooks

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