Explicit Bond Option and Swaption Formula in Heath-Jarrow-Morton One Factor Model
Marc P. A. Henrard
OpenGamma; University College London - Department of Mathematics
We present an explicit formula for European options on coupon bearing bonds and swaptions in the Heath-Jarrow-Morton (HJM) one factor model with non-stochastic volatility. The formula extends the Jamshidian formula for zero-coupon bonds. We provide also an explicit way to compute the hedging ratio (Delta) to hedge the option with its underlying.
Number of Pages in PDF File: 12
Keywords: Bond option, swaption, explicit formula, HJM model, one factor model, hedging
JEL Classification: G13
Date posted: November 30, 2003
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