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On Arbitrage‐Free Pricing of Interest Rate Contingent Claims
Author(s) -
RITCHKEN PETER,
BOENAWAN KIEKIE
Publication year - 1990
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.1540-6261.1990.tb05091.x
Subject(s) - interest rate , rendleman–bartter model , economics , arbitrage , interest rate derivative , econometrics , short rate model , mathematical economics , financial economics , monetary economics
Unlike most interest rate claim models, the Ho‐Lee model utilizes full information on the current term structure. Unfortunately, the model has a major deficiency in that negative interest rates can occur. This article modifies the model such that interest rates are well behaved.