Journal of Finance Vol. 52 No. 1 1997
Closed Form Solutions for Term Structure Derivatives With Log-Normal Interest Rates.
Abstract
The authors derive a unified model that gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero-coupon bonds. The crucial assumption is that simple interest rates over a fixed finite period that matches the contract, which the authors want to price, are log-normally distributed. Moreover, this assumption is shown to be consistent with the Heath-Jarrow-Morton model for a specific choice of volatility.
- Volume
- 52
- Issue
- 1
- Pages
- 409-30
- Sources
- bibtex:phds-export.bib