Bond option valuation for non-markovian interest rate processes Article

cited authors

  • Barber, JR

fiu authors

abstract

  • The standard method for valuing a European option on a bond portfolio is developed by Jamshidian. He shows that under certain circumstances the payoff from a bond option can be expressed as a portfolio of payoffs on discount bond options, allowing the option to be valued as a portfolio of options. A limitation of this approach is that it cannot be applied to non-Markovian interest rate processes. This paper develops a method for the valuation of a European option on a bond portfolio that can be applied to both Markovian and non-Markovian interest rate processes. © 2005 Blackwell Publishing Ltd.

publication date

  • January 1, 2005

Digital Object Identifier (DOI)

start page

  • 519

end page

  • 532

volume

  • 40

issue

  • 4