← Search

Pricing Interest Rate Options in a Two-Factor Cox–Ingersoll–Ross model of the Term Structure: Table 1

Ren-Raw Chen1,2; Louis Scott

1 Rutgers, The State University of New Jersey · 2 University of Georgia

Review of Financial Studies 1992

Solutions are presented for prices on interest rate options in a two-factor version of the Cox–Ingersoll–Ross model of the term structure. Specific solutions are developed for caps on floating interest rates and for European options on discount bonds, coupon bonds, coupon bond futures, and Euro-dollar futures. The solutions for the options are expressed as multivariate integrals, and we show how to reduce the calculations to univariate numerical integrations, which can be calculated very quickly. The two-factor model provides more flexibility in fitting observed term structures, and the fixed parameters of the model can be set to capture the variability of the term structure over time.

DOI
10.1093/rfs/5.4.613
Volume
5 (4)
Pages
613-636
Language
en
Export
BibTeX
Sources
openalex crossref