EXPLICIT BOND OPTION FORMULA IN HEATH–JARROW–MORTON ONE FACTOR MODEL

Marc Henrard ()

International Journal of Theoretical and Applied Finance (IJTAF), 2003, vol. 06, issue 01, 57-72

Abstract: We hereby present an explicit formula for European options on coupon bearing bonds in the Heath–Jarrow–Morton one factor model with non-stochastic volatility. The formula extends the Jamshidian formula for zero-coupon bonds for special form of volatility. Moreover we present a formula for zero-coupon bonds without condition on the volatility. We provide also an explicit way to compute the hedging ratio (Δ) in order to hedge the options individually.

Keywords: Bond options; swaption; explicit formula; HJM model; one factor model; hedging (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:06:y:2003:i:01:n:s0219024903001785

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DOI: 10.1142/S0219024903001785

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