An Integrated Approach to the Hedging and Pricing of Eurodollar Derivatives
Posted: 8 May 1998
Date Written: May 1996
Taking the term structure of Treasury securities and Eurodollar rates as exogenous, this paper provides an integrated approach to the pricing and hedging of LIBOR derivatives. Our approach allows the spread between Eurodollar and Treasury rates to reflect both the credit risk in holding Eurodollar deposits and a convenience yield from holding Treasury securities. This integrated approach includes the models of Babbs , Grinblatt , and Jarrow and Turnbull  as special cases.
JEL Classification: G13
Suggested Citation: Suggested Citation