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Interest rate option pricing with volatility humps

Iyuan Chuang and Peter H. Ritchken

No 9714, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: A development of a simple model in which interest rate claims are priced in the Heath-Jarrow-Morton paradigm and so incorporate full information on the term structure. The volatility structure for forward rates is humped and includes as a special case the exponentially dampened volatility structure used in the generalized Vasicek model.

Keywords: Options (Finance); Interest rates (search for similar items in EconPapers)
Date: 1997, Revised 1997
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Handle: RePEc:fip:fedcwp:9714