Stochastic duration and fast coupon bond option pricing in multi-factor models |
| |
Authors: | Munk Claus |
| |
Institution: | (1) Department of Management, Odense University, DK-5230 Odense M, Denmark |
| |
Abstract: | Generalizing Cox, Ingersoll, and Ross (1979), this paper defines the stochastic duration of a bond in a general multi-factor
diffusion model as the time to maturity of the zero-coupon bond with the same relative volatility as the bond. Important general
properties of the stochastic duration measure are derived analytically, and the stochastic duration is studied in detail in
various well-known models. It is also demonstrated by analytical arguments and numerical examples that the price of a European
option on a coupon bond (and, hence, of a European swaption) can be approximated very accurately by a multiple of the price
of a European option on a zero-coupon bond with a time to maturity equal to the stochastic duration of the coupon bond.
This revised version was published online in June 2006 with corrections to the Cover Date. |
| |
Keywords: | the term structure of interest rates stochastic duration multi-factor models coupon bond option pricing swaption pricing |
本文献已被 SpringerLink 等数据库收录! |
|