ANAYTICAL SOLUTIONS FOR THE PRICING OF AMERICAN BOND AND YIELD OPTIONS1

Marc Chesney, Robert J. Elliott and Rajna Gibson

Mathematical Finance, 1993, vol. 3, issue 3, 277-294

Abstract: In this paper we use the Cox, Ingersoll, and Ross (1985b) single‐factor, term structure model and extend it to the pricing of American default‐free bond puts. We provide a quasi‐analytical formula for these option prices based on recently established mathematical results for Bessel bridges, coupled with the optimal stopping time method. We extend our results to another interest rate contingent claim and provide a quasi‐analytical solution for American yield option prices which illustrates the flexibility of our framework.

Date: 1993
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https://doi.org/10.1111/j.1467-9965.1993.tb00045.x

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