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Pricing Interest Rate Derivatives: A General ApproachGeorge ChackoSanta Clara University Sanjiv Ranjan DasSanta Clara University - Leavey School of Business 2002 The Review of Financial Studies, Vol. 15, No. 1, pp. 195-241, Spring 2002 Abstract: The relationship between affine stochastic processes and bong pricing equations in exponential term structure models has been well established. We connect this result to the pricing of interest rate derivatives. If the term structure model is exponential afffine, then there is a linkage between the bond pricing solution and the prices of many widely traded interest rate derivative securities. Our results apply to m-factor processes with n diffusions and l jump processes. The pricing solutions require at most a single numerical integral, making the model easy to implement. We discuss many options that yield solutions using the methods of the article.
Keywords: interest rate derivatives, securities, pricing JEL Classification: M1, C1, G1 Accepted Paper SeriesDate posted: September 1, 2010 ; Last revised: March 14, 2011Suggested CitationContact Information
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