Explicit Bond Option and Swaption Formula in Heath-Jarrow-Morton One Factor Model

12 Pages Posted: 30 Nov 2003  

Marc P. A. Henrard

OpenGamma; University College London - Department of Mathematics

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Abstract

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.

Keywords: Bond option, swaption, explicit formula, HJM model, one factor model, hedging

JEL Classification: G13

Suggested Citation

Henrard, Marc P. A., Explicit Bond Option and Swaption Formula in Heath-Jarrow-Morton One Factor Model. Available at SSRN: https://ssrn.com/abstract=434860 or http://dx.doi.org/10.2139/ssrn.434860

Marc P. A. Henrard (Contact Author)

OpenGamma ( email )

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London, EC3A 4AF
United Kingdom

University College London - Department of Mathematics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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