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A Simple Approach to Interest-Rate Option Pricing

Stuart M. Turnbull¹; Frank Milne²

¹ Queen's University · ² Australian National University

A simple introduction to contingent claim valuation of risky assets in a discrete time, stochastic interest-rate economy is provided. Taking the term structure of interest rates as exogenous, closed-form solutions are derived for European options written on (i) Treasury bills, (ii) interest-rate forward contracts, (iii) interest-rate futures contracts, (iv) Treasury bonds, (v) interest-rate caps, (vi) stock options, (vii) equity forward contracts, (viii) equity futures contracts, (ix) Eurodollar liabilities, and (x) foreign exchange contracts.

DOI

10.1093/rfs/4.1.87

Volume

4 (1)

Pages

87-120

Language

en

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BibTeX

Sources

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