Stochastic volatility, movements in short term interest rates, and bond option values

Article Abstract:

There are two kinds of pricing interest rate contingent claims, the stochastic volatility variants and the standard single factor, and the capacity of models to fit movements in short term interest rates have improved considerably when the stochastic volatility is incorporated. This was made possible because the standard univariate models does not produce the conditional heteroskedasticity. The comparison of the two models in terms of bond option prices has concluded that stochastic volatility models will come up with lesser option values than the equivalent single factor models.

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A note on an equilibrium debt option pricing model in discrete time

Article Abstract:

Maloney and Burne (1989) discrete time model of the term structure of interest rates for the pricing of interest rate contingent claims contained an arbitrage. This is correct in this note so that the term structures generated by the model satisfy arbitrage-free restrictions.

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Factor models and the correlation structure of interest rates: some evidence for USD, GBP, DEM and JPY

Article Abstract:

Models for forward and spot interest rates are developed. Correlation structures, not previously searched, are investigated.

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