Interest Rate Futures Options and Interest Rate Options

Thomas S Y Ho and Sang Bin Lee

The Financial Review, 1990, vol. 25, issue 3, 345-70

Abstract: This paper derives pricing models of interest rate options and interest rate futures options. The models utilize the arbitrage-free interest rate movements model of Ho and Lee. In their model, they take the initial term structures as given, and for the subsequent periods, they only require that the bond prices move relative to each other in an arbitrage-free manner. Viewing the interest rate options as contingent claims to the underlying bonds, we derive the closed-form solutions to the options. Copyright 1990 by MIT Press.

Date: 1990
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