IDEAS home Printed from https://ideas.repec.org/p/bcb/wpaper/74.html
   My bibliography  Save this paper

Aplicação do Modelo de Black, Derman & Toy à Precificação de Opções Sobre Títulos de Renda Fixa

Author

Listed:
  • Octavio Manuel Bessada Lion
  • Carlos Alberto Nunes Cosenza
  • César das Neves

Abstract

This paper presents an application of the model of Black, Derman & Toy related to the pricing of options of fixed income assets. The model is a non-stationary one, where the mean reversion or volatility reversion or both are functions of time. The model makes it possible to calculate the price of non-arbitrage derivative contracts of the term structure of interest rates. The fundamental hypothesis is that the interest rate follows a lognormal random walk. It uses a binomial tree to simulate the stochastic process in study. This tree is created in a way to be consistent with the initial interest rate curve observed by the market. The results obtained were consistent, however as this kind of option does not exist in Brazil, we could not compare the results of our tests with the market prices of the contracts.

Suggested Citation

  • Octavio Manuel Bessada Lion & Carlos Alberto Nunes Cosenza & César das Neves, 2003. "Aplicação do Modelo de Black, Derman & Toy à Precificação de Opções Sobre Títulos de Renda Fixa," Working Papers Series 74, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:74
    as

    Download full text from publisher

    File URL: http://www.bcb.gov.br/pec/wps/port/wps74.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters,in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416 National Bureau of Economic Research, Inc.
    2. André Soares Loureiro & Fernando de Holanda Barbosa, 2004. "Risk Premia for Emerging Markets Bonds: Evidence from Brazilian Government Debt, 1996-2002," Working Papers Series 85, Central Bank of Brazil, Research Department.
    3. Minella, Andre & de Freitas, Paulo Springer & Goldfajn, Ilan & Muinhos, Marcelo Kfoury, 2003. "Inflation targeting in Brazil: constructing credibility under exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 1015-1040, December.
    4. Leonardo Soriano de Alencar & Márcio I. Nakane, 2004. "Bank Competition, Agency Costs and the Performance of the Monetary Policy," Working Papers Series 81, Central Bank of Brazil, Research Department.
    5. Araújo, Aloísio Pessoa de & Leon, Márcia Saraiva, 2003. "Speculative attacks on debts and optimum currency area: a welfare analysis," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 514, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    6. Marcelo Kfoury Muinhos & Márcio I. Nakane, 2006. "Comparing equilibrium real interest rates: different approaches to measure Brazilian rates," Working Papers Series 101, Central Bank of Brazil, Research Department.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:74. 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: (Francisco Marcos Rodrigues Figueiredo). General contact details of provider: http://www.bcb.gov.br/?english .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.