BOND PRICING AND THE TERM STRUCTURE OF INTEREST RATES: A NEW METHODOLOGY FOR CONTINGENT CLAIMS VALUATION

David Heath, Robert Jarrow () and Andrew Morton

Chapter 13 in Financial Derivatives Pricing:Selected Works of Robert Jarrow, 2008, pp 277-305 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates. The methodology, based on the equivalent martingale measure technique, takes as given an initial forward rate curve and a family of potential stochastic processes for its subsequent movements. A no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk. Examples are provided to illustrate the key results.

Keywords: Derivatives; Options; Hedging; HJM; Black–Scholes; Forwards; Futures; Martingale Measure; Calls; Puts; Market Manipulation; Margin Requirements (search for similar items in EconPapers)
Date: 2008
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Journal Article: Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation (1992)
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