Valuation and hedging of contingent claims in the HJM model with deterministic volatilities

M. Rutkowski

Applied Mathematical Finance, 1996, vol. 3, issue 3, 237-267

Abstract: The aim of the present paper is mostly expository, namely, we intend to provide a concise presentation of arbitrage pricing and hedging of European contingent claims within the Heath, Jarrow and Morton frame-work introduced in Heath et al. (1992) under deterministic volatilities. Such a special case of the HJM model, frequently referred to as the Gaussian HJM model, was studied among others in Amin and Jarrow (1992), Jamshidian (1993), Brace and Musiela (1994a, 1994b). Here, we focus mainly on the partial differential equations approach to the valuation and hedging of derivative securities in the HJM framework. For the sake of completeness, the risk neutral methodology (more specifically, the forward measure technique) is also exposed.

Keywords: term structure of interest rates; bond option; interest rate derivatives (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (4)

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DOI: 10.1080/13504869600000012

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