The Valuation of Bonds and Bond Options: Some Empirical Tests

29 Pages Posted: 5 Mar 2004

See all articles by Emilio Barone

Emilio Barone

Luiss - Guido Carli (Dpt. of Economics and Finance)

Domenico Cuoco

University of Pennsylvania - Finance Department

Date Written: October 1991

Abstract

This paper presents a general method for valuing fixed rate bonds and options written on them. In the first part, of a theoretical nature, we present valuation formulae, derived within the framework of the Cox, Ingersoll and Ross (CIR) model, both for bonds and for European options written on bonds (with and without coupons) and yields. We recall the theoretical parity of put and call options. In the second part we describe a procedure that can be used to estimate the CIR model using the prices of riskless coupon bonds. Lastly, we describe the valuation of bonds denominated in three different currencies and of the options implied in some Italian government securities.

Suggested Citation

Barone, Emilio and Cuoco, Domenico, The Valuation of Bonds and Bond Options: Some Empirical Tests (October 1991). Available at SSRN: https://ssrn.com/abstract=512523 or http://dx.doi.org/10.2139/ssrn.512523

Emilio Barone (Contact Author)

Luiss - Guido Carli (Dpt. of Economics and Finance) ( email )

Viale Romania, 32
Rome, 00197
Italy

HOME PAGE: http://docenti.luiss.it/barone/

Domenico Cuoco

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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