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

Posted: 30 Nov 2003

See all articles by Marc P. A. Henrard

Marc P. A. Henrard

muRisQ Advisory; 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. International Journal of Theoretical and Applied Finance, Vol. 6, No. 1, pp. 57-72, 2003. Available at SSRN: https://ssrn.com/abstract=472080

Marc P. A. Henrard (Contact Author)

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