An Integrated Approach to the Hedging and Pricing of Eurodollar Derivatives

WFIC 96-25

Posted: 8 May 1998

See all articles by Robert A. Jarrow

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management

Stuart M. Turnbull

University of Houston - C.T. Bauer College of Business

Date Written: May 1996

Abstract

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 [1991], Grinblatt [1994], and Jarrow and Turnbull [1995] as special cases.

JEL Classification: G13

Suggested Citation

Jarrow, Robert A. and Turnbull, Stuart M., An Integrated Approach to the Hedging and Pricing of Eurodollar Derivatives (May 1996). WFIC 96-25, Available at SSRN: https://ssrn.com/abstract=7608

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Finance
Ithaca, NY 14853
United States
607-255-4729 (Phone)
607-254-4590 (Fax)

Stuart M. Turnbull (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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