On the term structure of Interbank interest rates: Jump-diffusion processes and option pricing

Manuel Moreno and Juan I. Peña

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: In this paper we study the dynamic behavior of the term structure of Interbank interest rates and the pricing of options on interest rate sensitive securities. We posit a generalized single factor model with jumps to take into account external influences in the market. Daily data is used to test for jump effects. Qualitative examination of the linkage between Monetary Authorities' interventions and jumps are studied. Pricing results suggests a systematic underpricing in bonds and call options if the jumps component is not included. However, the pricing of put options on bonds presents indeterminacies.

Keywords: Jump-diffusion processes; interbank interest rates; option pricing (search for similar items in EconPapers)
JEL-codes: C51 E43 G12 (search for similar items in EconPapers)
Date: 1996-11
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Citations: View citations in EconPapers (2)

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Working Paper: On the term structure of Interbank interest rates: jump-diffusion processes and option pricing (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:191

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