Valuing Coupon Bond Linked to Variable Interest Rate

Rossano Giandomenico

MPRA Paper from University Library of Munich, Germany

Abstract: The paper analyses coupon bonds linked to variable interest rate in a contingent claim approach such that it can be decomposed in elementary options on interest rate and options to default. It is considered the case of continuous arithmetic average of interest rate in a simple capitalization to value the variable coupon paid by the bonds at maturity. The paper determines the expected interest rate on the bonds and the risk spread due to the default risk.

Keywords: Contingent claim; Asian option; Stochastic continuous process (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21974

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