An Efficient Generalized Discrete-Time Approach to Poisson-Gaussian Bond Option Pricing in the Heath-Jarrow-Morton Model

Sanjiv Das ()

No 212, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: Term structure models employing Poisson-Gaussian processes may be used to accommodate the observed skewness and kurtosis of interest rates. This paper extends the discrete-time, pure-Gaussian version of the Heath-Jarrow-Morton model to the pricing" of American-type bond options when the underlying term structure of interest rates follows a Poisson-Gaussian process. The Poisson-Gaussian process is specified using a hexanomial tree (six nodes emanating from each node), and the tree is shown to be recombining. The scheme is parsimonious and convergent. This model extends the class of HJM models by (i) introducing a more generalized volatility specification than has been used so far, and (ii) inducting jumps, yet retaining lattice recombination, thus making the model useful for practical applications.

JEL-codes: C63 G13 (search for similar items in EconPapers)
Date: 1997-06
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Das, Sanjiv Ranjan. "A Direct Discrete-Time Approach To Poisson-Gaussian Bond Option Pricing In The Heath-Jarow-Morton Model," Journal of Economic Dynamics and Control, 1998, v23(3,Nov), 333-369.

Downloads: (external link)
http://www.nber.org/papers/t0212.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:nbr:nberte:0212

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/t0212

Access Statistics for this paper

More papers in NBER Technical Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().