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European options on bond futures: A closed form solution

โœ Scribed by David Feldman

Publisher
John Wiley and Sons
Year
1993
Tongue
English
Weight
520 KB
Volume
13
Category
Article
ISSN
0270-7314

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โœฆ Synopsis

Pesante, and Catherine Shalen for helpful discussions. I am also grateful to two anonymous referees for valuable comments.

'The price of an American option is the solution of a free boundary problem. In most, if not all, cases these solutions are determined numerically.

'Jamshidian (1989) and Rabinovitch (1989) priced a European bond option on the bond priced in Vasicek (1977). There, the instantaneous spot rate of interest evolves as the Ornstein-Uhlenbeck process, a mean reverting process with a deterministic instantaneous variance.

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