Options on Bonds: Implied Volatilities from Affine Short-Rate Dynamics

Matthew Lorig and Natchanon Suaysom

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Abstract: We derive an explicit asymptotic approximation for the implied volatilities of Call options written on bonds assuming the short-rate is described by an affine short-rate model. For specific affine short-rate models, we perform numerical experiments in order to gauge the accuracy of our approximation.

Date: 2021-06
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2106.04518

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