Explicit bond option and swaption formula in Heath-Jarrow-Morton one factor model

Marc Henrard ()

Finance from EconWPA

Abstract: We present an explicit formula for European options on coupon bearing bonds and swaptions in the Heath-Jarrow-Morton (HJM) one factor model with non-stochastic volatility. The formula extends the Jamshidian formula for zero-coupon bonds. We provide also an explicit way to compute the hedging ratio (Delta) to hedge the option with its underlying.

Keywords: Bond option; swaption; explicit formula; HJM model; one factor model; hedging (search for similar items in EconPapers)
JEL-codes: G13 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-rmg
Date: 2003-10-12
Note: Type of Document - LaTeX; prepared on Linux; to print on HP;
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0310009

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