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An Integrated Approach to Hedging and Pricing Eurodollar Derivatives

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  • Robert Jarrow
  • Stuart Turnbull

Abstract

Taking the term structure of Treasury securities and Eurodollar rates as exogenous, this paper provides an integrated approach to the pricing and hedging of LIBOR derivatives. Our approach allows the spread between Eurodollar and Treasury rates to reflect both the credit risk in holding Eurodollar deposits and a convenience yield from holding Treasury securities. This integrated approach includes the models of Babbs [1991], Grinblatt [1994], and Jarrow and Turnbull [1995] as special cases. This paper was presented at the Financial Institutions Center's May 1996 conference on "

Suggested Citation

  • Robert Jarrow & Stuart Turnbull, 1996. "An Integrated Approach to Hedging and Pricing Eurodollar Derivatives," Center for Financial Institutions Working Papers 96-25, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Handle: RePEc:wop:pennin:96-25
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    Cited by:

    1. Jarrow, Robert A. & Turnbull, Stuart M., 2000. "The intersection of market and credit risk," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 271-299, January.
    2. Chia-Chien Chang & Chou-Wen Wang & Szu-Lang Liao, 2009. "The valuation of special purpose vehicles by issuing structured credit-linked notes," Applied Financial Economics, Taylor & Francis Journals, vol. 19(3), pages 227-256.

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