Implied interest rate pricing models

J.E. Kennedy () and P.J. Hunt ()
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J.E. Kennedy: Department of Statistics, University of Oxford, 1 South Parks Road, Oxford OX1 3TG, UK Manuscript
P.J. Hunt: ABN-AMRO Bank, Structured Products Group, 199 Bishopsgate, London EC2M 3TY, UK

Finance and Stochastics, 1998, vol. 2, issue 3, 275-293

Abstract: We show how market prices for standard interest rate products can be used, under the assumption of a one-factor model, to imply the joint distribution of zero coupon bonds of differing maturities at a fixed date $T$ in the future. We relate these results to the solution of an optimisation problem arising in the pricing of amortising swaptions. Finally, we apply these ideas to price (and hedge) products of importance in the interest rate derivatives market.

Keywords: Interest rate models; swaptions (search for similar items in EconPapers)
JEL-codes: E43 G13 (search for similar items in EconPapers)
Date: 1998-05-05
Note: received: March 1997; final version received: May 1997
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Citations: View citations in EconPapers (2)

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