On the valuation of compositions in L\'evy term structure models
We derive explicit valuation formulae for an exotic path-dependent interest rate derivative, namely an option on the composition of LIBOR rates. The formulae are based on Fourier transform methods for option pricing. We consider two models for the evolution of interest rates: an HJM-type forward rate model and a LIBOR-type forward price model. Both models are driven by a time-inhomogeneous L\'evy process.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Farshid Jamshidian, 1997. "LIBOR and swap market models and measures (*)," Finance and Stochastics, Springer, vol. 1(4), pages 293-330.
- Miltersen, K. & K. Sandmann & D. Sondermann, 1994.
"Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates,"
Discussion Paper Serie B
308, University of Bonn, Germany.
- Miltersen, Kristian R & Sandmann, Klaus & Sondermann, Dieter, 1997. " Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates," Journal of Finance, American Finance Association, vol. 52(1), pages 409-30, March.
- Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
- Marc Henrard, 2004. "Swaptions: 1 price, 10 deltas, and ... 6 1/2 gammas," Finance 0407018, EconWPA, revised 14 Aug 2004.
- Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
- Maria Siopacha & Josef Teichmann, 2007. "Weak and Strong Taylor methods for numerical solutions of stochastic differential equations," Papers 0704.0745, arXiv.org.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:0902.3456. 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: (arXiv administrators)
If references are entirely missing, you can add them using this form.