Since 2014
Average Interest Rate Call: Pricing, Hedging and Application
Journal of Financial Studies
View Archive Info| Field | Value | |
| Title |
Average Interest Rate Call: Pricing, Hedging and Application
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| Creator |
Shyan-Yuan Lee
Cheng-Hsi Hsieh Chi-Tsai Chen |
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| Description |
This paper explores exotic derivatives of interest rate, which we particularly refer to the average interest rate call. The average interest rate call pricing model proposed by Longstaff (1995) has been modified and extended in a way that the underlying average rate is constructed by observable and commonly-used discrete rate rather than unobservable and continuous-time short rate. Additionally, methods used by Levy (1992) and Vorst (1992) for Asian currency options are applied to price the average interest rate call; and two approximation formulas for pricing this average call are derived. The new developed formulas are not only consistent with the current term structure prevailed in the market, but also ready to apply since the rates used to compute the average rate are observable. Both the hedging strategy and the applications for the new contract are also discussed in the paper. Key words: Term Structure of Interest Rate, Interest Rate Options, Average Interest Rate Call, Average Interest Rate Put |
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| Publisher |
Journal of Financial Studies
財務金èžå¸åˆŠ |
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| Date |
2011-06-03
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| Type |
—
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| Format |
application/pdf
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| Identifier |
http://www.jfs.org.tw/index.php/jfs/article/view/2011140
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| Source |
Journal of Financial Studies; Vol 11, No 1 (2003); 67
財務金èžå¸åˆŠ; Vol 11, No 1 (2003); 67 |
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| Language |
—
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