Aplicação do Modelo de Black, Derman & Toy à Precificação de Opções Sobre Títulos de Renda Fixa

Octavio Bessada Lion, Carlos Cosenza and César Neves

No 74, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper presents an application of the model of Black, Derman & Toy related to the pricing of options of fixed income assets. The model is a non-stationary one, where the mean reversion or volatility reversion or both are functions of time. The model makes it possible to calculate the price of non-arbitrage derivative contracts of the term structure of interest rates. The fundamental hypothesis is that the interest rate follows a lognormal random walk. It uses a binomial tree to simulate the stochastic process in study. This tree is created in a way to be consistent with the initial interest rate curve observed by the market. The results obtained were consistent, however as this kind of option does not exist in Brazil, we could not compare the results of our tests with the market prices of the contracts.

Date: 2003-05
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps74.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:74

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().