Interest rate options valuation under incomplete information

Constantin Mellios ()

Annals of Operations Research, 2007, vol. 151, issue 1, 99-117

Abstract: This paper aims at examining the term structure of interest rates and European-type interest rate option prices in a partially observable economy. It extends the existing literature on incomplete information by developing a one-factor model which is consistent with the initial yield curve and by providing closed-form solutions for discount bonds and different kinds of options. The model of this paper encompasses Hull and White’s (1990). Moreover, through a numerical example, these two models are compared and the impact of incomplete information on option prices is analysed. Copyright Springer Science+Business Media, LLC 2007

Keywords: General equilibrium; Term structure of interest rates; Incomplete information; Filtering theory; Option prices (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s10479-006-0128-2

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