Continuous-Time Limits in the Generalized Ho-Lee Framework under the Forward Measure
The forward measure in the discrete time Ho/Lee model is derived and passages to the continuous time limit are carried out under this measure. In particular the continuous time valuation formula for call options on zero coupon bonds is obtained as a limit of its discrete time equivalent as well as the continuous time distribution of the continuously compounded short rate. Finally it is shown that the trinomial and quattronomial generalizations of the Ho/Lee model by Bühler and Schulze are essentially equivalent to the Ho/Lee model as concernes their discrete time properties and their continuous time limits.
|Date of creation:||Apr 1994|
|Date of revision:||Jul 1996|
|Contact details of provider:|| Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany|
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de
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.:
- David Heath & Robert Jarrow & Andrew Morton, 2008.
"Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation,"
World Scientific Book Chapters,
in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305
World Scientific Publishing Co. Pte. Ltd..
- 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.
- Sandmann, K. & E. Schlögl, 1993. "Zustandspreise und die Modellierung des Zinsänderungsrisikos," Discussion Paper Serie B 238, University of Bonn, Germany.
- Ho, Thomas S Y & Lee, Sang-bin, 1986. " Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-1029, December. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bon:bonsfb:276. 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: (BGSE Office)
If references are entirely missing, you can add them using this form.