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An Exact Bond Option Formula
Author(s) -
JAMSHIDIAN FARSHID
Publication year - 1989
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1989.tb02413.x
Subject(s) - vasicek model , bond , short rate , gaussian , mathematics , interest rate , mathematical economics , economics , econometrics , financial economics , monetary economics , yield curve , finance , computational chemistry , chemistry
This paper derives a closed‐form solution for European options on pure discount bonds, assuming a mean‐reverting Gaussian interest rate model as in Vasicek [8]. The formula is extended to European options on discount bond portfolios.