THE DOTHAN PRICING MODEL REVISITED |
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| Authors: | Caroline Pintoux Nicolas Privault |
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| Affiliation: | 1. Laboratoire de Mathématiques, Université de Poitiers;2. Department of Mathematics, City University of Hong Kong |
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| Abstract: | We compute zero‐coupon bond prices in the Dothan model by solving the associated PDE using integral representations of heat kernels and Hartman–Watson distributions. We obtain several integral formulas for the price P(t, T) at time t > 0 of a bond with maturity T > 0 that complete those of the original paper of Dothan, which are shown not to always satisfy the boundary condition P(T, T) = 1 . |
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| Keywords: | interest rate models Dothan model PDE heat kernel option pricing Hartman‐Watson distribution Bessel functions |
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