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OPTIONS ON U.S. TREASURY COUPON ISSUES
Author(s) -
Finucane Thomas J.
Publication year - 1988
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1988.tb01278.x
Subject(s) - coupon , treasury , bond , closing (real estate) , economics , econometrics , financial economics , bridge (graph theory) , zero coupon bond , actuarial science , finance , medicine , archaeology , history
Pricing models for options on default‐free coupon bonds are developed and tested under the assumption that the bond prices, rather than interest rates, are the underlying stochastic factors. Under the assumption that coupon bond prices, excluding accrued interest, follow a generalized Brownian bridge process, preference‐free, continuous‐time pricing models are developed for European put and call options, and a discrete‐time model is developed for American puts and calls. The empirical validity of the models is assessed using a six‐moth sample of daily closing prices.