EFFECTS OF STOCHASTIC INTEREST RATES AND VOLATILITY ON CONTINGENT CLAIMS*

Naoto Kunitomo and Yong‐jin Kim

The Japanese Economic Review, 2007, vol. 58, issue 1, 71-106

Abstract: We investigate the effects of stochastic interest rates and the volatility of the underlying asset price on contingent claim prices including futures and options prices. The futures price can be decomposed into the forward price and an additional term; the options price can be decomposed into the Black‐Scholes formula and several additional terms by applying the asymptotic expansion approach of the small disturbance asymptotics developed by Kunitomo and Takahashi (1995, 1998, 2001, 2003a, 2003b). The technical method is based on a new application of the Malliavin‐Watanabe Calculus or the Watanabe‐Yoshida Theory on Malliavin Calculus in stochastic analysis. We illustrate our new formulae and their numerical accuracy.

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1111/j.1468-5876.2007.00345.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jecrev:v:58:y:2007:i:1:p:71-106

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1352-4739

Access Statistics for this article

The Japanese Economic Review is currently edited by Akira Okada

More articles in The Japanese Economic Review from Japanese Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().