Journal of Finance Vol. 54 No. 1 1999

An Empirical Comparison of Forward‐Rate and Spot‐Rate Models for Valuing Interest‐Rate Options

Wolfgang Bühler¹; Marliese Uhrig‐Homburg¹; Ulrich Walter²; Thomas A. Weber³

¹ University of Mannheim , Germany · ² Deutsche Genossenschaftsbank Germany · ³ Infinity Financial Technology London

Abstract

Our main goal is to investigate the question of which interest‐rate options valuation models are better suited to support the management of interest‐rate risk. We use the German market to test seven spot‐rate and forward‐rate models with one and two factors for interest‐rate warrants for the period from 1990 to 1993. We identify a one‐factor forward‐rate model and two spot‐rate models with two factors that are not significantly outperformed by any of the other four models. Further rankings are possible if additional criteria are applied.

DOI

10.1111/0022-1082.00104

Volume

54

Issue

1

Pages

269-305

Language

en

Sources

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